Prepared by Public Affairs 312-751-4777
The following questions and answers describe the statements
issued by the Railroad Retirement Board each January for Federal income tax
purposes. Railroad retirement beneficiaries needing information about these statements, or
tax withholding from their benefits, should contact the
nearest office of the
Railroad Retirement Board. For further Federal income tax information, railroad
retirement beneficiaries should contact the nearest office of the
Internal
Revenue Service.
For the phone number or address of the nearest Board field office, individuals
should look in the telephone directory under “United States Government,” or
check with their local union official, rail employer, post office, or Federal
Information Center. They can also find the address and phone number of the Board
office serving their area by calling the automated toll-free RRB
Help Line at
1-800-808-0772 or by checking the Board's Web site at www.rrb.gov. Board
field offices are open to the public from 9:00 a.m. to 3:30 p.m., Monday through
Friday, except on Federal holidays.
1. How are the annuities paid under the Railroad Retirement Act treated under
the Federal income tax laws?
A railroad retirement annuity is a single payment comprised of one or more of
the following components, depending on the annuitant's age, the type of annuity
being paid, and eligibility requirements: a Social Security Equivalent
Benefit (SSEB) portion of tier I, a Non-Social Security Equivalent Benefit (NSSEB)
portion of tier I, a tier II benefit, a vested dual benefit, and a supplemental
annuity. In most cases, part of a railroad retirement annuity is treated like a social
security benefit for Federal income tax purposes, while other parts of the annuity are
treated like private pensions for tax purposes. Consequently,
most annuitants are sent two tax statements from the Railroad Retirement Board
each January, even though they receive only a single annuity payment each month.
2. Which railroad retirement benefits are treated as social security benefits
for Federal income tax purposes?
The SSEB portion of tier I (the part of a railroad retirement annuity equivalent to a social security
benefit based on comparable earnings) is treated for Federal income tax purposes
the same way as a social security benefit. The amount of these benefits that may
be subject to Federal income tax, if any, depends on the beneficiary's income.
If taxable pensions, wages, interest, and dividends, and other taxable income,
plus
tax-exempt interest income, plus half of the amount of the social security
equivalent benefit payments exceed:
$25,000 for an individual, $32,000 for a married couple
filing jointly, and zero for a married individual who files separately but
lived with his or her spouse any part of the year, up to 50 percent of these
railroad retirement benefit payments may be considered taxable income;
$34,000 for an individual, $44,000 for a
married couple filing jointly, and zero for a married individual who files
separately but lived with his or her spouse any part of the year, up to 85
percent of these benefits may be taxable.
3. Which railroad retirement benefits are treated like private pensions for Federal income tax purposes?
The NSSEB portion of tier I, tier II benefits,
vested dual benefits, and supplemental annuities are all treated like private
pensions for Federal income tax purposes. In some cases, primarily those in
which early retirement benefits are payable to retired employees and spouses
between ages 60 and 62, some occupational disability benefits, and other
categories of unique Board entitlements, the entire
annuity may be treated like a private pension. This is because social security
benefits based on age and service are not payable before age 62, social
security disability benefit entitlement requires total disability, and the
Social Security Administration does not pay some categories of beneficiaries
paid by the Board..
4. What information is shown on the railroad retirement tax statements sent to
annuitants in January?
One statement, the blue and white Form Form RRB-1099
for U.S. citizens or residents (or black and white Form RRB-1042S for nonresident aliens), shows the
SSEB portion of tier I or special minimum guaranty payments made during the tax
year, the amount of any such benefits that an annuitant may have repaid to the
Board
during the tax year, and the net amount of these payments after subtracting the
repaid amount. The amount of any offset for workers' compensation and the amount
of Federal income tax withheld from these payments are also shown.
Illustrations and explanations of items found on Form RRB-1099 and Form
RRB-1042S can be found in IRS Publication 915,
Social Security and Equivalent Railroad
Retirement Benefits.
The other statement, the green and white Form RRB-1099-R (for both U.S. citizens
and nonresident aliens), shows the NSSEB portion of tier I, tier II, vested dual
benefit, and supplemental annuity paid to the annuitant during the tax year, as
well as the employee contributions amount.
The NSSEB portion of tier I along with tier II are considered contributory
pension amounts and are shown as a single combined amount in the Contributory
Amount Paid box (Item 4) on the statement.
The vested dual benefit and supplemental annuity
are considered noncontributory pension amounts and are shown as separate box
items on the statement. The total gross paid amount shown on Form RRB
1099-R is the sum of the NSSEB portion of tier I, tier II, vested dual benefit
and supplemental annuity payments. Also shown is the amount of
Federal income tax withheld from these payments. The statement
also shows the amount of any of these prior year benefits repaid by the annuitant to
the Board during the tax year. This amount is not subtracted from the gross
amounts shown because its treatment depends on the years to which the repayment
applies and its taxability in those years. To determine the year or years to
which the repayment applies, annuitants should contact the Board. Illustrations
and explanations of items found on Form RRB-1099-R can be found in IRS
Publication 575, Pension and Annuity Income.
If the annuitant is taxed as a nonresident alien of the
United States, Form RRB-1042S and/or Form RRB-1099-R will show the rate of tax
withholding (0%, 15% or 30%) and country of permanent residence.
The total Part B Medicare premiums deducted from the railroad retirement annuity
may also be shown on either Form RRB-1099 (Form RRB-1042S for nonresident
aliens) or Form RRB-1099-R. The
statements also include the annuitant’s name, current mailing address, railroad
retirement claim
number and payee code, United States taxpayer identifying number (social
security number or individual taxpayer identification number or employer
identification number), detailed explanations of all the items on the
statements, and the toll-free telephone numbers and Web site addresses of the
Board, the IRS, and the Social Security Administration.
Copy B and/or Copy 2 of Form RRB-1099-R must be submitted with the annuitant's tax return.
Annuitants should retain copy C of all statements for their records, especially
if they may be required to verify their income in connection with other
Government programs.
5. What is the significance of the employee
contribution amount?
For railroad retirement annuitants, the employee contribution amount is
considered the amount of railroad retirement payroll taxes paid by the employee
that exceeds the amount that would have been paid in social security taxes if
the employee’s railroad service had been covered under the Social Security Act.
The employee contribution amount is referred to by the IRS as an employee’s
investment, or cost, in the contract. An employee contribution amount is
not a payment
or income received during the tax year. Only employee and survivor annuitants
have an employee contribution amount shown in Item 3 of their Form RRB-1099-R.
The contributory amount paid (NSSEB portion of tier I and/or tier II) is
considered income and is reported to the IRS. The contributory amount paid is
either fully taxable or partially taxable depending on whether the employee
contribution amount has been used to compute a tax-free (nontaxable) portion of
the contributory amount paid. If no employee contribution amount is shown on
Form RRB-1099-R, then the contributory amount paid is fully taxable.
The use and recovery of the employee contributions amount is important for
annuitants since it affects the amount of taxable income to be reported on
income tax returns for a tax year. There is a tax savings advantage in using
(recovering) employee contributions since it may reduce the taxability of the
contributory amount paid and, in turn, the amount of taxable income.
Annuitants should refer to IRS Publication 575,
Pension and Annuity Income, and
Publication 939, General Rule for Pensions
and Annuities, for more information concerning the tax treatment of the
contributory amount paid (see items 6 and 7 below) and use of the employee
contribution amount.
6. If an employee contribution amount is
shown on my Form RRB-1099-R, may I use the entire amount?
The employee contribution amount shown is
attributable to the railroad account number. This means that the employee
contribution amount must be shared by all eligible annuitants under that same
railroad retirement account number.
If an employee contribution amount is shown on
your Form RRB-1099-R and your annuity beginning date is July 2, 1986, or later,
you may be able to use some or all of the employee
contribution amount shown to compute the nontaxable (tax-free) amount of your
contributory amount paid. Therefore, your contributory amount paid and total
gross paid shown on your Form RRB-1099-R may be partially taxable.
If an employee contribution amount is
not
shown on your Form RRB-1099-R, you
cannot
use or share the employee contribution amount. Therefore, your contributory
amount paid and total gross paid shown on your Form RRB-1099-R are fully
taxable.
When more than one annuitant is or was entitled
to a contributory amount paid under the same railroad retirement account number, any
eligible annuitant may not
use the entire employee contribution amount shown on their Form RRB-1099-R for
themselves. They must first determine the amount of the total employee
contribution amount they are individually entitled to use. That means
determining:
1. The portion of the total employee
contribution amount still potentially available for use, and
2. The portion of that amount that must be shared
by those eligible annuitants currently receiving contributory amounts paid.
7. How are contributory and
noncontributory pension amounts taxed?
Amounts shown on Form RRB-1099-R are treated like
private pensions and taxed either as contributory pension amounts or as
noncontributory pension amounts. The NSSEB portion of tier I and tier II (shown
as the contributory amount paid on the statement) are contributory pension
amounts. Contributory pension amounts may be fully taxable or partially taxable
depending on the presence and use (recovery) of the employee contribution
amount. Vested dual benefits and supplemental annuities are considered
noncontributory pension amounts. Noncontributory pension amounts are always
fully taxable and do not involve the use of the employee contribution amount.
For annuitants with annuity beginning dates
before July 2, 1986,
the contributory amount paid is fully taxable.
These annuitants cannot
use the employee contribution amount, even if the amount is shown on Form
RRB-1099-R, to compute a nontaxable amount of their contributory amount paid
because their employee contribution amount has been fully recovered. Since the
contributory amount paid is fully taxable, the total gross pension paid in Item
7 of Form RRB-1099-R is fully taxable.
For annuitants with annuity beginning dates from
July 2, 1986, through December 31, 1986,
the contributory amount paid is partially nontaxable for the life of the
annuitant. These annuitants may use some or all of the employee contribution
amount to compute the nontaxable amount of their contributory amount paid. Once
that nontaxable amount is computed, it does not need to be recomputed and can be
used for each tax year unless there is a change in the employee contribution
amount, annuity beginning date, date of birth used to determine life expectancy,
or the number of eligible annuitants receiving contributory amounts paid.
Therefore, the total gross pension paid in Item 7 of Form RRB-1099-R may be
partially taxable.
For annuitants with annuity beginning dates
effective January 1, 1987, and
later, the contributory amount paid is
partially nontaxable for a specified period of time based on life expectancy as
determined by IRS actuarial tables. These annuitants may use some or all of the
employee contribution amount to compute the nontaxable amount of their
contributory amount paid. Once that nontaxable amount is computed, it does not
need to be recomputed and can be used for each tax year unless there is a change
in the employee contribution amount, annuity beginning date, date of birth used
to determine life expectancy, or the number of eligible annuitants receiving
contributory amounts paid. Therefore, the total gross pension paid in Item 7 of
Form RRB-1099-R may be partially taxable.
However, once the specified life expectancy
is met, the employee contribution amount is considered fully recovered and the
contributory amount paid and total gross pension paid are now fully taxable.
The contributory amounts paid of disabled
employee annuitants under
minimum retirement age are fully taxable and these annuitants
cannot
use the employee contribution amount. Therefore, the total gross pension paid in
Item 7 of Form RRB-1099-R is fully taxable. (Minimum retirement age is generally
the age at which individuals could retire based on age and service, which is age
60 with 30 or more years of railroad service or age 62 with less than 30 years
of railroad service.) However, once
the disabled employee annuitant reaches minimum retirement age, the annuitant
may use the employee contribution amount shown on Form RRB-1099-R to compute the
nontaxable amount of his or her contributory amount paid.
The Board does not calculate the nontaxable
amount of the contributory amount paid for annuitants.
Annuitants should contact the IRS or their own tax preparer for assistance in
calculating the nontaxable amount of their contributory amount paid. For more
information on the tax treatment of the contributory amount paid, vested dual
benefits, supplemental annuities, the employee contribution amount, and how to
use the IRS actuarial tables, annuitants should refer to IRS Publication 939,
General Rule for Pensions and Annuities,
and IRS Publication 575, Pension and
Annuity Income.
8. Does Form RRB-1099-R show the taxable
amount of any contributory railroad retirement benefits or just the total amount
of such benefits paid during the tax year?
Since 1993 (tax year 1992), Form RRB-1099-R shows
the total
amount of any contributory railroad retirement benefits (NSSEB and tier II) paid
during the tax year. The Board does
not calculate the taxable amounts. It is
up to the annuitant to determine the taxable and nontaxable (tax-free) amounts
of the contributory amount paid using the employee contribution amount.
9. Can an employee’s contributions amount
change?
Yes. The employee contribution amount shown on
Form RRB-1099-R is based on the latest railroad service and earnings information
available on the Board’s records. Railroad service and earnings information (and
the corresponding employee contribution amount) often changes in the first year
after an employee retires from railroad service. That is when the employee’s
final railroad service and earnings information is furnished to the Board by his
or her employer. As a result, the employee contribution amount shown on the
most recent Form RRB-1099-R may have increased or decreased from a
previously-issued Form RRB-1099-R.
Any change in an employee contribution amount is
fully retroactive to the railroad retirement annuity beginning date. Therefore,
the nontaxable amount of the contributory amount paid should be recomputed. This
could affect the taxable amounts reported to the IRS on prior income tax
returns. Generally, an increase in the employee contribution amount is
advantageous, as it will yield a larger tax-free amount. However, a decrease in
the employee contribution amount may be disadvantageous since it may result in
an increased tax liability. In any case, annuitants should determine if any
change in their employee contribution amount would require them to file
original or amended Federal income tax returns for prior tax years.
10. What if a person receives social
security as well as railroad retirement benefits?
Railroad retirement annuitants who also received
social security benefits during the tax year receive a Form SSA-1099 (or Form
SSA-1042S if they are nonresident aliens) from the Social Security
Administration. They should add the net social security equivalent or special
guaranty amount shown on Form RRB-1099 (or Form RRB-1042S) to the net social
security income amount shown on Form SSA-1099 (or Form SSA-1042S) to get the
correct total amount of these benefits. They should then enter this total on the
Social Security Benefits Worksheet in the instructions for Form 1040 or 1040A to
determine if part of their social security and railroad retirement social
security equivalent benefits is taxable income.
Additional information on the taxability of these
benefits can be found in IRS Publication 915,
Social Security and Equivalent Railroad
Retirement Benefits.
11. Are the residual lump sums, lump-sum
death payments or separation allowance lump-sum amounts paid by the Board subject
to Federal income tax?
No. These amounts are nontaxable and are not
subject to Federal income tax. The Board does not report these amounts on
statements. 12. Are
Federal income taxes withheld from railroad retirement annuities?
Yes, and the amounts withheld are shown on the
statements issued by the Board each year. However, an annuitant may request that
Federal income taxes not be withheld, unless the annuitant is a nonresident
alien or a U.S. citizen living outside the United States.
Annuitants can voluntarily choose to have Federal
income tax withheld from their SSEB payments. To do so, they must complete IRS
Form W-4V, Voluntary Withholding
Request, and send it to the Board. They can
choose withholding from their SSEB payments at the following rates: 7 percent,
10 percent, 15 percent, or 25 percent.
Annuitants who wish to have Federal income taxes
withheld from their NSSEB and tier II (contributory amount paid), vested dual
benefit, and supplemental annuity payments must complete a tax withholding
election on Form RRB W-4P,
Withholding Certificate For Railroad Retirement Payments,
and send it to the Board. An annuitant is
not
required to file Form RRB W-4P. If that form is not filed, the Board will withhold
taxes only if the combined portions of the NSSEB and tier II (contributory
amount paid), vested dual benefit and supplemental annuity payments are equal to
or greater than an annual threshold amount. In that case, the RRB withholds taxes as if the
annuitant were married and claiming three allowances.
13. How is tax withholding applied to the
railroad retirement benefits of nonresident aliens?
A nonresident alien is a person who is neither a
citizen nor a resident of the United States. Under the Internal Revenue Code,
nonresident aliens are subject to a 30-percent tax on income from sources within
the United States not connected to a U.S. trade or business. The 30-percent rate
applies to all annuity payments exceeding social security equivalent payments
and to 85 percent of the annuity portion treated as a social security benefit.
The Code also requires the Board to withhold the tax. The tax can be at a rate
lower than 30 percent or can be eliminated entirely if a tax treaty between the
United States and the country of residence provides such an exemption, and the
nonresident alien completes and sends Form RRB-1001,
Nonresident Questionnaire,
to the Board. Form RRB-1001 secures citizenship, residency and tax treaty claim
information for nonresident beneficiaries (nonresident aliens or U.S. citizens
residing outside the United States).
Form RRB-1001 is sent by the Board to nonresident
aliens every three years to renew the claim for a tax treaty exemption.
Failure by a nonresident alien to complete
Form RRB-1001 will cause loss of the exemption until the exemption is renewed.
Such renewals have no retroactivity. Also, a nonresident alien must include his
or her United States taxpayer identifying number on Form RRB-1001. Otherwise,
any tax treaty exemption claimed on the form is not valid. The majority of
nonresident aliens receiving annuities from the Board are citizens of Canada,
which has a tax treaty with the United States.
If a Canadian citizen claims an exemption under
the tax treaty, no tax is withheld from the social security equivalent benefit
portion of tier I and a tax withholding rate of 15 percent is applied to
the benefit portions treated like pension payments.
Additional information concerning the taxation of
nonresident aliens can be found in IRS Publication 519,
U.S. Tax Guide for Aliens.
14. Are unemployment benefits paid under the
Railroad Unemployment Insurance Act subject to Federal income tax?
All unemployment benefit payments are subject to
Federal income tax. Each January the Board sends Form 1099-G to individuals,
showing the total amount of railroad unemployment benefits paid during the
previous year.
15. Are sickness benefits paid by the Board
subject to Federal income tax?
Sickness benefits paid by the Board, except for
sickness benefits paid for on-the-job injuries, are subject to Federal income
tax under the same limitations and conditions that apply to the taxation of sick
pay received by workers in other industries. Each January the Board sends Form W-2,
Wage and Tax Statement,
to affected beneficiaries. This form shows the amount of sickness benefits that
each beneficiary should include in his or her taxable income.
16. Does the Board withhold Federal income
tax from unemployment and sickness benefits?
The Board withholds Federal income tax from
unemployment and sickness benefits only if requested to do so by the
beneficiary. A beneficiary can request withholding of 10 percent of his or her
unemployment benefits by filing Form W-4V with the Board. A beneficiary can
request withholding from sickness benefits by filing Form W-4S,
Request for Federal Income Tax Withholding
From Sick Pay.
17. Are railroad retirement and railroad
unemployment and sickness benefits paid by the Board subject to State income
taxes?
The Railroad Retirement and Railroad Unemployment
Insurance Acts specifically exempt these benefits from State income taxes.
18. Can a railroad employee claim a tax
credit on his or her Federal income tax return if the employer withheld excess
railroad retirement taxes during the year?
If any one railroad employer withheld more than
the annual maximum amount, the employee must ask that employer to refund the
excess. It cannot be claimed on the employee's return.
19. Can a railroad employee working two jobs
during the year get a tax credit if excess retirement payroll taxes were
withheld by the employers?
Railroad employees who also worked for a
nonrailroad social security covered employer in the same year may, under certain
circumstances, receive a tax credit equivalent to any excess social security
taxes withheld.
Employees who worked for two or more railroads
during the year, or who had tier I taxes withheld from their Board sickness
benefits in addition to their railroad earnings, may be eligible for a tax
credit of any excess tier I or tier II railroad retirement taxes withheld. The
amount of tier I taxes withheld from sickness benefits paid by the Board is shown
on Form W-2 issued to affected beneficiaries. Employees who had tier I taxes
withheld from their supplemental sickness benefits may also be eligible for a
tax credit of any excess tier I tax.
Such tax credits may be claimed on an employee's
Federal income tax return.
Employees who worked for two or more railroads,
received sickness benefits, or had both railroad retirement and social security
taxes withheld from their earnings should see IRS Publication 505,
Tax Withholding and Estimated Tax,
for information on how to figure any excess railroad retirement or social
security tax withheld.
Public Affairs
U.S. Railroad Retirement Board
844 North Rush Street
Chicago, IL 60611-2092
Telephone: |
312-751-4777 |
FAX: |
312-751-7154 |
E-mail: |
opa@rrb.gov |
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