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

Answers are provided by Robert S. Kaufman

Taxation of Railroad Retirement Payments

(Posted February 5, 2013)

Question 967: I retired last year and am collecting Tier 1 and Tier 2. Are there different rules when filing taxes? Currently I am exempt from paying Federal income tax.

Answer: The actual application of the Federal income tax to Railroad Retirement is very complicated. Most Railroad Retirement benefits consist of two components, or Tiers. Most of Tier 1 is like a Social Security benefit and is taxed in exactly the same way. If you are single and your income exceeds $25,000, 50% of the Social Security amount is taxable. If you are married, then the threshold for joint income of a married couple is $32,000. If the annual income is substantially higher, up to 85% could be taxable.

The remainder of the benefit is treated as a "contributory private pension." IRS applies the so-called "General Rule" to determine the amount that is considered to have come from your share of payroll taxes over the years and therefore becomes excluded from Federal income tax. The balance is taxed as ordinary income.

Like the Social Security Administration and all private pension administrators, the RRB reports all payments to the IRS and issues Forms 1099 and 1099R report forms in January of each year for payments made in the preceding year.

You should check to see if your benefits are taxable by your State. A few states, such as Nevada, Texas and Florida, do not have an income tax. Some states, such as Illinois, fully exempt pensions from their state income tax or exempt a portion. Other states fully tax Railroad Retirement and other pension benefits.

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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