Prepared by Public Affairs 312-751-4777
The following questions and answers describe the tax statements issued by the
Railroad Retirement Board (RRB) each January for Federal income tax purposes.
Railroad retirement beneficiaries needing information about these statements, or
about tax withholding from their benefits, should contact the
nearest office of
the RRB. For further Federal income tax information, railroad retirement
beneficiaries should contact the nearest office of the Internal Revenue Service
(IRS).
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 RRB 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, 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
income.
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 RRB
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 RRB.
4. What information is shown on the railroad
retirement tax statements sent to annuitants in January?
One statement, the blue and white 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 RRB
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 contribution 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 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 RRB 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 RRB.
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. Medicare premiums deducted from social security
benefits paid by the RRB, paid by a third party, or paid through direct billing
are not shown on RRB-issued tax statements.
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 contribution amount is important for
annuitants since it affects the amount of taxable income to be reported on
income tax returns. 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
retirement 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 annuitants 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:
-
The portion of the total employee contribution amount still potentially
available for use, and
-
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
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 RRB 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?
Form RRB-1099-R shows the total amount of any contributory railroad retirement
benefits (NSSEB and tier II) paid during the tax year. The RRB 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 contribution 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 RRB’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 RRB 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 RRB subject to Federal income tax?
No. These amounts are nontaxable and are not subject to Federal income tax. The
RRB 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 RRB 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 RRB. 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 RRB.
An annuitant is not required to file Form RRB W-4P. If that form is not filed,
the RRB 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 $1,547.01. 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 Internal
Revenue Code also requires the RRB 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 RRB. 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 RRB 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 RRB 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 RRB 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 RRB subject to Federal income tax?
Sickness benefits paid by the RRB, 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 RRB sends Form W-2 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 RRB withhold Federal income tax from unemployment and sickness
benefits?
The RRB 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.
17. Are railroad retirement and railroad unemployment and sickness benefits paid
by the RRB 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 RRB 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 RRB is shown on Form W-2 issued to affected
beneficiaries. Employees who had tier I taxes withheld from their supplemental
sickness benefits (benefits paid under an RRB-approved nongovernmental sickness
insurance plan, such as a supplemental sickness benefit plan established by a
railroad) 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.
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