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Impact of Spouse's Earnings on Taxation of Benefits
(Posted March 26, 2003)
Question 231: My husband has more than 33 years of rail service. He will be 55 in December, when he plans to retire. How much of his benefits will be taxable? If I continue working, will my earnings affect the taxable portion of his benefits?
Answer: First of all, although your husband can leave his job at 55, he will not be able to receive Railroad Retirement until he is 60 (unless he is disabled).
When he does begin receiving benefits in December 2008, most of his monthly payments will be taxable under the federal Internal Revenue Code. Only the portion deemed to be based on his Tier 2 payroll taxes is exempt from taxation. When you file your IRS Form 1040 for the first year that he receives Railroad Retirement, he will be able to calculate that figure under the IRS' "General Rule."
The remainder of his benefits are subject to two different taxing methods: the portion of his benefit that is calculated to be equivalent to a Social Security benefit will be taxed the same way that Social Security benefits are treated, and the rest will be taxed as a contributory private pension.
Your earnings only affect the federal income tax rate that is determined on your combined incomes, including his Railroad Retirement payments.
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