Question 714: My husband receives an RRB Disability Annuity. RRB just determined that his disability is permanent, so it is now a full disability. RRB said that, because of the disability freeze, there is a chance it will increase his monthly annuity. Someone also told us it might impact the timing of the spouse annuity payment.
We are 57. He has over 30 years of rail service. I know there are some tax consequences. Can you explain how this works?
Answer: The Railroad Retirement Board (RRB) makes two separate decisions in each disability case.
The first decision is made under the Railroad Retirement Act and is applied to permit payments if the disability is granted.
The second decision is made to see if the applicant's condition is severe enough to establish a "Period of Disability," sometimes referred to as a "Disability Freeze" under the Social Security Act.
A "Period of Disability" permits the RRB to test the annuity rate to see if it could be increased by using the Social Security benefit formula. In most cases there is no increase in monthly benefits. The exception is when there are young children and a spouse is caring for them. It will also permit you to get Medicare early after you receive an annuity for two years.
The "Period of Disability" does not lower the age at which a spouse can receive benefits. Because your husband has more than 30 years of rail service, you will be eligible for a full spouse annuity at 60.
There might be Federal income tax consequences. With a Period of
Disability, most of your husband's Tier 1 should become taxed as a Social Security benefit, which generally yields a lower taxable income. You should confirm this with either the Railroad Retirement Board or your personal tax advisor when you receive your RRB 1099 forms for 2009 early in 2010.