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 an 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, Form RRB-1099 for U.S. citizens or residents (or 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, 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, and may show an
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 percent, 15 percent or
30 percent) and country of residence for income tax purposes. Nonresident aliens
may receive more than one set of
original tax statement Forms RRB-1042S and/or RRB-1099-R in a tax year if there
was a change in the country of residence for income tax purposes, or a change in
the rate of income tax applied to annuity payments. Nonresident aliens who
resided in the United States for part of a tax year may receive a set of
original U.S. citizen tax statement Forms RRB-1099 and/or RRB-1099-R and one or
more sets of nonresident alien tax statement Forms RRB-1042S and/or RRB-1099-R.
The total 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 may 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 questions 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.
For example, a survivor family group consists of a widow and two full time
students. All three annuitants are eligible to use a portion of the employee
contribution amount shown on their Forms RRB-1099-R. They must determine the
portion of the employee contribution amount they may each use. Item 7 below
provides general information on how to calculate this amount. For more specific
information, annuitants should refer to IRS Publication 575,
Pension and Annuity
Income, and Publication 939, General Rule for Pensions and Annuities.
Any change in the total number of eligible annuitants receiving contributory
amounts paid will affect the nontaxable amounts of these annuitants.
This change
is retroactive to the date on which the number of eligible annuitants changed.
Any of these changes could potentially affect the taxable amounts reported to
the IRS on prior year income tax returns. Annuitants should determine if any
change would require them to file original or amended U.S. Federal income tax
returns for prior tax years.
In the above example, if one of the full time students is no longer eligible for
an annuity, the remaining unused portion of the employee contribution amount
after termination of the ineligible individual must then be recalculated for use
by the widow and remaining full time student.
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 may be partially nontaxable for the life
of the annuity. These annuitants may be able to use some or all of the employee
contribution amount to compute a nontaxable 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 contributory amount paid in Item 4 and 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 may be 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 contributory amount paid in Item 4 and 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
both 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 contributory amount paid in Item 4 and the
total gross pension paid in Item 7 of Form RRB-1099-R are 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. If an annuity was due but unpaid at the time of an annuitant's death, it may
be payable to another person. Would that person be subject to Federal income tax
on this annuity?
Yes, if the deceased annuitant would have had to pay Federal income tax on the
benefit. The taxable amount of the annuity is reported to the IRS and on Form
RRB-1099 (or Form RRB-1042S) or Form RRB-1099-R, as appropriate, which is sent
to the person who received the annuity.
13. 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 50 states or Washington, D.C.
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 are taxed as U.S. citizens and who do not live outside the 50
states or Washington, D.C., and 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 exceed an annual threshold amount.
In that case, the RRB withholds taxes as if the annuitant were married and
claiming three allowances.
14. 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 SSEB 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.
15. 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.
16. 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.
17. 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 IRS Form
W-4V, Voluntary Withholding Request, with the RRB. A beneficiary can request
withholding from sickness benefits by filing IRS Form W-4S,
Request for Federal
Income Tax Withholding from Sick Pay.
18. 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.
19. 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.
20. 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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