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BenefitsLink > Q&A Columns >

Stop, Look & Listen: Railroad Retirement Benefits Q&A

Answers are provided by Robert S. Kaufman

Taxation of Disability Annuities

(Posted May 29, 2004)

Question 456: I am about to receive a disability annuity from Railroad Retirement. I have been determined to be totally and permanently disabled from all work. How much, if any, of my disability annuity will be subject to federal income tax?

Answer: Your entire disability annuity will be subject to federal income tax. How your Tier 1 & Tier 2 benefit are taxed will depend on how severe your condition is.

If you qualify for a "Period of Disability" in addition to a Total & Permanent Disability Annuity, most of your Tier 1 will be taxed in the same way that Social Security Benefits are taxed. A portion of your Tier 1 and your entire Tier 2 will be taxed as a private pension payment.

If you do not qualify for a "Period of Disability," your entire annuity will be taxed as a private pension until you reach 62. Then a portion of your Tier 1 will start to be taxed like Social Security.

The Railroad Retirement Board should have provided information about how your benefits are affected by federal income tax, when you filed your disability benefit application. If it didn't, you should ask the RRB for an explanation now so you can decide on withholding the correct amount from your monthly payment to cover your estimated tax liability.

Important notice:

Answers are provided as general guidance on the subjects covered in the question and are not provided as legal advice to the questioner or to readers. Any legal issues should be reviewed by your legal counsel to apply the law to the particular facts of this and similar situations.

The law in this area changes frequently. Answers are believed to be correct as of the posting dates shown. The completeness or accuracy of a particular answer may be affected by changes in the law (statutes, regulations, rulings, court decisions, etc.) that occur after the date on which a particular Q&A is posted.

Copyright 1997-2017 Robert S. Kaufman
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