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The following questions and answers describe the benefit information statements issued by the Railroad Retirement Board each year for Federal income tax purposes. Railroad retirement beneficiaries needing information about these statements, or tax withholding from their benefits, should contact the nearest office of the RRB. They may e-mail the board with their inquiries at taxation@mcs.com.
Part I of this series appeared in the February issue.
8. Are the residual lump sums, lump-sum death payments or separation allowance lump-sum amounts paid by the Railroad Retirement Board subject to Federal income tax?
No. These amounts are not subject to Federal income tax.
9. Are Federal income taxes withheld from railroad retirement annuities?
Yes, and the amounts withheld are shown on the statements issued by the Board each year. However, an annuitant may request that Federal income taxes not be withheld, unless the annuitant is a nonresident alien or a citizen living outside the United States.
Annuitants who wish to have a specific amount of Federal income taxes withheld from the portions of their annuity over and above social security equivalent benefits must complete tax withholding election on Form RRB W-4P, Withholding Certificate For Railroad Retirement Payments, and send it to the Board.
Annuitants can voluntarily choose to have Federal income tax withheld from their social security equivalent payments. To do so, they must complete IRS From V-4V, Voluntary Withholding Certificate, and send it to the Board. They can choose withholding from their social security equivalent payments at the following rates: 7%, 15%, 28% or 31%.
10. How is tax withholding applied to the railroad retirement benefits of nonresident aliens?
Under the Internal Revenue Code, nonresident aliens are subject to a 30% tax on income from sources within the United States not connected to a U.S. trade or business. The 30% rate applies to all annuity payments exceeding social security equivalent payments and to 85% of the annuity portion treated as a social security benefit. The Code also requires the Board to withhold the tax. The tax can be at a rate lower than 30% or can be precluded entirely for payments exceeding social security equivalent amounts of a tax treaty between the United States and the country of residence provides such an exemption, and the nonresident alien completes the exemption renewal forms sent by the Board every three years.
Failure by a nonresident alien to complete these forms will cause loss of the exemption until the exemption is reviewed. Such renewals have no retroactivity. The majority of nonresident aliens receiving annuities from the Board are citizens of Canada, which has a tax treaty with the United States.
If a Canadian citizen claims an exemption under the tax treaty, no tax is withheld from the annuity portion equivalent to a social security benefit and a withholding rate of only 15% is applied to those annuity payments exceeding social security equivalent payments.
Additional information concerning the taxation of nonresident aliens can be found in IRS Publication 519, U.S. Tax Guide For Aliens.
11. Are unemployment benefits paid under the Railroad Unemployment Insurance Act subject to Federal income tax?
All unemployment benefit payments are subject to Federal income tax. Each January the Board sends Form 1099-G to individuals, showing the total amount of railroad unemployment benefits paid during the previous year.
12. Are sickness benefits paid by the Railroad Retirement Board subject to Federal income tax?
Sickness benefits paid by the Board, except for sickness benefits paid for on-the-job injuries, are subject to Federal income tax under the same limitations and conditions that apply to the taxation of sick pay received by workers in other industries. Each January the Board sends Form W-2 to affected beneficiaries.
13. Does the Board withhold Federal income tax from unemployment and sickness benefits?
The Board withholds Federal income tax from unemployment and sickness benefits only if requested to do so by the beneficiary.
14. Are railroad retirement and railroad unemployment and sickness benefits paid by the Board subject to State income taxes?
The Railroad Retirement and Railroad Unemployment Insurance Acts specifically exempt these benefits from State income taxes.
15. Can a railroad employee claim a tax credit on his or her Federal income tax return if the employer withheld excess railroad retirement taxes during the year?
If any one railroad employer withheld more than the annual maximum amount, the employee must ask that employer to refund the excess. It cannot be claimed on the employee's return.
16. Can a railroad employee working two jobs during the year get a tax credit if excess retirement payroll taxes were withheld by the employers?
Railroad employees who also worked for a nonrailroad social security covered employer in the same year may, under certain circumstances, receive a tax credit equivalent to any excess social security taxes withheld.
Employees who worked for two or more railroads during the year, or who had Tier I taxes withheld from their Railroad Retirement Board sickness benefits in addition to their railroad earnings, may be eligible for a tax credit of any excess Tier I or Tier II railroad retirement taxes withheld. The amount of Tier I taxes withheld from sickness benefits paid by the Board is shown on Form W-2 issued to affected beneficiaries. Employees who had Tier I taxes withheld from their supplemental sickness benefits may also be eligible for a tax credit of any excess Tier I tax.
Such tax credits may be claimed on an employee's Federal income tax return.
Employees who worked for two or more railroads, received sickness benefits or had both railroad retirement and social security taxes withheld from their earnings, should see IRS Publication 505, Tax Withholding and Estimated Tax, for information on how to figure any excess railroad retirement or social security tax withheld.
The U.S. Railroad Retirement Board will conduct free informational conferences throughout the country in 1998. Registration for all conferences begins at 8 a.m., and the conferences run from 8:30 a.m. to 12:15 p.m.
Please mark your calendar and plan to attend one of the following conferences in your area:
April 3, Williamsburg, Va.
Ft. MaGruder Inn, Route 60 East
April 3, New York, N.Y.
The New York Helmsley Hotel, 212 East 42nd St., Turtle Bay Room.
April 15, Ashland, Neb.
Mahoney State Park, Kiewit Lodge, 28500 W. Park Highway, Cedar Room, Interstate 80 Exit 426.
April 17, Birmingham, Ala.
Wynfrey Hotel, 1000 Riverchase Galleria, Room E, (U.S. 31 at 1-459).
April 17, Romulus, Mich.
DoubleTree Hotel (formerly Royce Hotel), 31500 Wick Rd, I-94, Exit 198 (Metro Airport)
April 24, Salt Lake City, Utah
Holiday Inn Airport, 1659 West North Temple
May 1, East Hanover, N.J.
Ramada Inn, 130 Route 10 West (Exit 10 East off I-287)
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