General Information

Regular railroad retirement annuities consisting of Tier I, Tier II, and Vested Dual Benefit components, have been subject to United States Federal income tax since 1984. Supplemental annuities have been subject to Federal income tax since 1966. According to the Railroad Retirement Act, Section 14 (45 U.S.C. Section 231m), railroad retirement annuities are not taxable for State income tax purposes.

Refer to booklet TB-25, Tax Withholding and Railroad Retirement Payments, for more detailed information regarding tax withholding on railroad retirement payments. Refer to booklet TB-85, Information about the Taxation of Railroad Retirement Annuities, for general taxation information.

We only report taxable payments and repayments on the tax satements. Questions about U.S. income tax information, what amounts to show on income tax returns, or how to figure your taxable payments should be referred to the Internal Revenue Service. However, questions about railroad retirement benefit payments should be referred to your local Railroad Retirement Board office.

Tier I And Tier II

The Tier I component of a railroad retirement annuity is composed of two parts:

(1) The Social Security Equivalent Benefit (SSEB) portion, and

(2) The Non-Social Security Equivalent Benefit (NSSEB) portion. Your Tier I may be composed of SSEB only, NSSEB only, or both.

The SSEB portion of Tier I is similar to a social security benefit and is treated as a social security benefit for Federal income tax purposes.

To determine if your SSEB portion of Tier I and/or social security benefits are taxable, refer to the Social Security Benefits worksheet in the IRS booklet 1040 Instructions. For more detailed information, get IRS Publication 915, Social Security Benefits and Equivalent Railroad Retirement Benefits.

The NSSEB portion of Tier I and the Tier II portion of a railroad retirement annuity are treated like contributory pensions for Federal income tax purposes. Only the amount of the contributory pension that exceeds the amount of contributions made by the wage earner is taxable. Refer to IRS Publication 939, General Rule for Pensions and Annuities, to determine your taxable amount if you are not using the Simplified General Rule.

Information For Widow(er)s

For widow(er)s that were paid as a spouse for part of the year, only the annuity payments received as a widow(er) should be used to compute the nontaxable portion of the annuity payments.

For a widow(er) under age 60 who has a child in care, the Tier I portion of the railroad retirement annuity is considered all SSEB. However, the Tier I portion of the railroad retirement annuity is considered all NSSEB if the Tier I is not payable under the rules established by the Social Security Administration. An example of Tier I considered as all NSSEB occurs when the child under the widow(er)'s care turns age 16 and is not disabled.

Repayments

A repayment is a returned payment, a cash refund, or an amount withheld for overpayment purposes.

Under the Internal Revenue Code, the RRB is allowed to give repayment credit for the SSEB and/or pre-SSEB portion of Tier I for any tax year. Refer to IRS Publication 915, Social Security and Equivalent Railroad Retirement Benefits, for information regarding current tax year or prior tax year's SSEB repayment.

The NSSEB portion of Tier I and Tier II repayments are composed of taxable and nontaxable portions. There are tax implications when considering NSSEB Tier II repayments. Therefore, the way you will handle the repayment will depend on the tax years to which the repayment applies, and whether you had included the benefits that you repaid in your gross income for those tax years. Refer to IRS Publication 575, Pension and Annuity Income, for information regarding NSSEB, Tier II , Vested Dual Benefits, and SUPP repayments as well as instructions on how to handle current tax year and prior tax years' repayments for income tax purposes.

U.S. Citizen and Resident Tax Withholding

The RRB allows citizens and legal residents of the United States to elect tax withholding on their railroad retirement annuity. A tax withholding election must be filed on Form RRB W-4P, Withholding Certificate For Railroad Retirement Payments.

RRB annuitants can also file IRS Form W-4V, Voluntary Withholding Request, to have taxes withheld from the SSEB portion of Tier I, or from their Social Security Benefits. Form W-4V permits tax withholding at four set rates: 7%, 10%, 15% or 27%. Form RRB W-4P allows annuitants to have taxes deducted from the pension portions of the annuity: NSSEB, Tier II, Vested Dual Benefits, and SUPP.

If you elect to have income taxes withheld, by using Form RRB W-4P, you may control the amount of taxes withheld from your regular monthly or accrued annuity payments by specifying your marital status and the number of withholding allowances. You may also request the RRB to withhold an additional amount or not to withhold any taxes from your annuity by using Form RRB W-4P. If an election is made, it will remain in force until changed or revoked. If an election is not made, the RRB is required by law to withhold taxes as if you were married with three allowances. However, tax withholding would not automatically be initiated unless your taxable annuity components paid in a month exceed the minimum mandatory withholding amount. Refer to booklet TB-25, Tax Withholding and Railroad Retirement Payments, for the minimum mandatory withholding amount and further information on tax withholding.

NOTE: If a U.S. citizen moves or resides outside of the United States and has not filed Form RRB-1001, Nonresident Questionnaire, claiming U.S. citizenship, taxes will be withheld at the mandatory nonresident alien tax withholding rate until Form RRB-1001 is received at the RRB. See the following section for further information.

Nonresident Alien Tax Withholding

A nonresident alien is an individual who is neither a citizen nor a resident of the United States. As prescribed by the Internal Revenue Code, nonresident aliens are subject to a mandatory tax withholding rate of 30% on 85% of the SSEB amount and 30% of the NSSEB and Tier II amounts.

The United States has a number of tax treaties with foreign countries which may result in reduced tax withholding or, in some instances, no tax withholding for citizens or residents of those foreign countries. In order to take advantage of a tax treaty, you must claim an exemption based on a tax treaty in effect between the United States and your country of legal residence. Such a claim must be renewed every three years. Form RRB-1001, Nonresident Questionnaire, is what a nonresident beneficiary should file in order to furnish citizenship, residence, and tax treaty claim exemption information to the RRB. If Form RRB-1001 is not filed or received, any nonresident beneficiary is assumed to be a nonresident alien and the mandatory tax withholding rate prescribed by the Internal Revenue Code is applied to the railroad retirement annuity.

Therefore, we encourage our beneficiaries to file proof of citizenship and/or a Form RRB-1001 before moving to a foreign country in order to avoid the mandatory nonresident alien tax withholding rate.

Contact an office of the RRB, an American Consulate, or an American Embassy if you need help completing Form RRB-1001, if you need to submit proof of your legal residence or citizenship.