Under the RRA, creditable compensation and retirement-survivor benefits are based on a two-tier structure. Railroad retirement taxes under the Railroad Retirement Tax Act are also computed using the tier structure. Consequently, a direct relationship exists between creditable compensation, the corresponding taxes paid to the Internal Revenue Service (IRS), and the benefit formula under the RRA.

• Tax: The Tier I tax is computed on the same percentage rate and annual maximum tax base as social security. The Tier I tax is composed of three tax components; Old Age & Survivors (OASI), Disability (DI), and Health (HI) Insurance or Medicare. For example, the 2000 Tier I rate of 7.65% is composed of 5.35% OASI; .85% DI; and 1.45% Medicare. Like social security tax, employee and employer share Tier I tax equally.
  
  
• Amounts earned over and above the Tier I maximum are not creditable under the Railroad Retirement Act even though additional amounts earned are taxable for Medicare purposes. Taxable Medicare earnings beyond the creditable Tier I maximum are not reported to the RRB, except on Form BA-11, Gross Earnings Report. For example, in 2000 the Tier I annual earnings maximum was $76,200, and the Tier II annual earnings maximum was $56,700. If an employee earned $80,000 in 2000, the employer should report $76,200 as creditable Tier I compensation and $56,700 as creditable Tier II compensation. The entire $80,000 is taxable for Medicare purposes.
  
  
• Earnings Base: Employees may receive Tier I compensation credit up to the same annual maximum earnings base as that year's social security wage base.
  
  
• Benefits: The Tier I portion of regular railroad retirement annuities is calculated by using the social security benefit formula. It yields amounts equivalent to social security benefits, based on combined Tier I compensation and non-railroad social security credits.

• Tax: Both employee and employer pay an additional tax, called Tier II tax, to finance railroad retirement benefit payments over social security levels. The rail employer's share of the Tier II tax is higher than the employee's share.
  
  
• Earnings Base: The annual Tier II maximum earnings base is lower than the social security wage base. When the Tier II maximum is attained, additional earnings remain taxable and creditable up to the applicable Tier I retirement maximum.
  
  
• Benefits: The Tier II portion of regular railroad retirement annuities is calculated in such a way as to yield benefits comparable to private pensions. The Tier II benefit portion is based solely on railroad service and Tier II compensation.

• Tax: The railroad unemployment-sickness benefit program is financed by contributions (taxes) paid solely by railroad employers and is currently based on taxable earnings of their employees. The unemployment and sickness insurance contribution rate is experience-rated. This means that each employer pays contributions at a rate that takes into consideration the employer's actual incidence of benefit usage by its employees.
  
  
• Earnings Base: An employee's taxable earnings base is subject to a monthly limit. The earnings base is indexed each year by a formula related to the annual rate of increase in the maximum base for Tier I taxes.
  
  
• Benefits: A new unemployment-sickness benefit year begins every July 1, with eligibility generally based on railroad service and earnings in the preceding calendar year.

The RRB collects employer contributions (taxes) under the RUIA. The Tier I, Tier II, and Supplemental Annuity taxes are collected by the IRS under the authority of the Railroad Retirement Tax Act (26 USC 3221).|