Self-Employment and Other Nonrailroad Work

Earnings from nonrailroad employment, including self-employment, after you annuity beginning date may cause work deductions. Nonrailroad work is any job that is not in the railroad industry. This includes work for a Canadian railroad, which is not covered under the Railroad Retirement Act, and work as an elected or appointed public official.

If you are claiming self-employment, the RRB determines whether or not you are performing "substantial services" as an independent contractor. The payment of self-employment taxes may be evidence of an independent contractor status, but is not conclusive.  If you are working for an incorporated business that you own, the RRB does not consider that work self-employment. 

If you are self-employed as a consultant, the RRB considers how your self-employment compares to the work you did for your former railroad or nonrailroad employer before you applied for your annuity.  You should complete and return Form AA-4 Self-Employment and Substantial Service Questionnaire to provide the RRB with the necessary information to make that determination. 

For more information about self-employment, see Form G-177L General Information about Continuing in or Returning to Nonrailroad Employment after Retirement under the Railroad Retirement Act.

Spouse Annuity Tier 1 Component and Divorced Spouse Annuity Work Deductions

If both you and the employee are Full Retirement Age (FRA), or older, on your ABD, you may skip to Tier 2 Component Work Deductions. You are not affected by work deductions to your spouse annuity Tier 1 component or divorced spouse annuity.  

If either you are or the employee is under FRA, earnings from any nonrailroad employment (including self-employment) over the Annual Earnings Exempt Amount may cause work deductions to your spouse annuity Tier 1 component or divorced spouse annuity. 

1. Definition of Annual Earnings Exempt Amount - The term Annual Earnings Exempt Amount means the amount of money you or the employee can earn in nonrailroad employment in a year without losing part of your annuity. There are separate Annual Earnings Exempt Amounts for persons under FRA, and for the year in which the person attains FRA, as explained in the following chart.
   
   

   Determining Your Work Deductions
   For a year in which:	You may lose up to $1 in your  Tier 1 component for every	The reduction:
   you attain FRA,	$3.00 of earnings over the Annual Earnings Exempt Amount for your age group.  However, your earnings are only counted for months before the month in which you attain FRA.	is removed effective the month in which you attain FRA.
   you are under FRA for the entire year,	$2.00 of earnings over the Annual Earnings Exempt Amount for your age group.	applies for the full year.
   you work outside the U.S. for 45 or more hours per month,	$2.00 of earnings.  There is no Annual Earnings Exempt Amount for work outside the U.S.  However, your earnings are only counted for months before the month in which you attain FRA.	is removed effective the month in which you attain FRA.

   Refer to Form G-77a How Work Affects Your Railroad Retirement Benefits for the Annual Earnings Exempt Amount to use when completing the earnings items on your annuity application.

2. Definition of Earnings for Work Deductions - In general, earnings restrictions apply to gross earnings from employment and net earnings from self-employment. Gross earnings are all salaries, commissions, bonuses, retroactive wage increases, or any allowances for room or board. If these earnings are from an employer covered under the Social Security (SS) Act, the amount of the gross earnings is equal to the amount reported for social security tax under the Federal Insurance Contributions Act (FICA). Net earnings from self-employment equal the amount of gross income minus expenses that were reported for social security tax under the Self-Employment Contributions Act (SECA). Add your earnings from employment and self-employment together to determine the total earnings for the year for the purpose of work deductions.

   Do not include as earnings any money that you received for any reason other than work, such as interest from savings, income from investments, gifts, inheritances, pensions or other retirement benefits.
   
   When employees have earnings over the Annual Earnings Exempt Amount for their age group, the excess is charged against their annuity and the annuities of all others entitled on their earnings record. An exception applies for a divorced spouse who has been divorced from the employee for at least two years. The employee's earnings will not cause work deductions to the divorced spouse annuity effective from the second anniversary of the divorce.

3. Exception For First Year of Entitlement - In the year your annuity begins, deductions for your own earnings are based on your earnings for the entire year, not just the earnings after you retire. However, a special rule may be used to apply work deductions in the first year after your annuity begins in which you have a non-work month. For many people, this is the year their annuity begins.

   A Non-Work Month is a month in which you earn less than the Monthly Earnings Exempt Amount for your age (the Annual Earnings Exempt Amount for your age divided by twelve) or, if self-employed, render no substantial services. (The RRB uses Form AA-4 Self-Employment and Substantial Service Questionnaire to determine months in which you rendered no substantial services.)
   
   1. Special Rule Applies - In the year the special rule is applied, no Tier 1 work deductions for your own earnings are applied to any Non-Work Month. If you have high earnings before your annuity begins, but do not earn more than the Monthly Exempt Earnings Amount in any month after your annuity begins, Tier 1 work deductions for your own earnings will not be required.
      
   2. Special Rule Does Not Apply - If you do earn more than the Monthly Earnings Exempt Amount in one or more months after your annuity begins, deductions are assessed to those months up to the amount required based on your total earnings for the year. Also, after the first year in which you have a Non-Work Month, this monthly test does not apply. If your earnings are high enough, deductions will be assessed to your annuity for the entire year, even if you only work part of the year.
      
      
4. Exception for Social Security Benefit Entitlement - No earnings deductions are made by the RRB in your spouse annuity Tier 1 component or divorced spouse annuity if you are receiving social security benefits. Earnings deductions may be made by the Social Security Administration in your social security benefit. 

Last Pre-Retirement Employment (LPE)

Definition -

Your Last Pre-Retirement Nonrailroad Employment  (LPE) is defined as any nonrailroad individual, company or institution for whom you are working on the date your spouse annuity begins or for whom you stopped working in order to receive an annuity. Even work for which you are paid minimal earnings can be LPE. A few exceptions for types of nonrailroad work are listed below.  

The nonrailroad employer is always your LPE if you are working in nonrailroad employment on the date your spouse annuity begins or, if you have stopped working, you still hold rights to return to service of the nonrailroad employer on the date your spouse annuity begins.

The nonrailroad employer is presumed to be your LPE if you stopped working within the six months preceding your annuity beginning date. When you were working for two or more persons, companies, or institutions within the six months preceding your annuity beginning date, all such employers are presumed to be your LPE. 

Work That is not Considered LPE - 

Some types of nonrailroad work are not considered LPE, no matter when they are done. The following types of nonrailroad work are not LPE:

1. military service;
2. mail handling under contract for the U.S. Post Office;
3. jury duty;
4. employment for which you are reimbursed only for your expenses;
5. certain seasonal employment where you do not have rights to return to the employment (such as working in a department store during the Christmas season);
6. work as a member (owner) of a Limited Liability Corporations; or,
7. self-employment as defined under the Railroad Retirement Act.

Also note that any nonrailroad employment after the date your spouse annuity begins, for an employer that you never worked for before the date your spouse annuity begins, is not LPE and does not affect your Tier 2 component. It can, however, cause  Tier 1 work deductions.

Spouse Tier 2 Component Work Deductions

Employee annuitants must report earnings from their own Last Pre-Retirement Nonrailroad Employer (LPE). They are charged work deductions against their Tier 2 components and their supplemental annuities, if any, and the Tier 2 components of spouses entitled on their earnings records.

Also,  if you are applying for a spouse annuity, you must report your own earnings from your LPE in or after the month your spouse annuity begins. Your LPE earnings will reduce your Tier 2 component. The reduction is $1 for each $2 earned (subject to a maximum reduction of 50 percent of the Tier 2 component). 

The reduction to Tier 2 component occurs at any age, even after Full Retirement Age. 

Work deductions for LPE apply even if the employee has 360 or more months of railroad service. There is no Annual Earnings Exempt Amount or Monthly Earnings Exempt Amount for the first year of entitlement for LPE work deductions. LPE work deductions apply no matter how much money you earn in LPE.

Earnings from self-employment or other nonrailroad employment are not added to your LPE earnings when computing Tier 2 component work deductions.

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