The Railroad Retirement pension system parallels the Social Security system. Administered by the Railroad Retirement Board, this system was created in the 1930s to fix problems with then-existing private railroad pensions. Railroad employees pay into the Railroad Retirement system instead of paying Social Security tax and receive similar benefits. Some of these benefits may be taxable.
Railroad Retirement Benefits
Railroad retirement pension benefits fall into several categories with varying tax consequences. The tier 1 pension must be least as much as you would get if you were receiving Social Security benefits instead. Tier 2 benefits are annuity payments funded by employer and employee contributions. Railroad workers who retire before age 65 and who have at least 25 years service may receive supplementary benefits. Some people have worked for the railroads and at jobs where they paid Social Security tax. In this case, they may qualify for both retirement programs and thus receive what are called vested dual benefits.
Social Security Equivalent Benefit
The portion of tier 1 benefits that are equivalent to Social Security benefits you would have received are treated as if they were Social Security payments for tax purposes. If your only income comes from Social Security equivalent benefits -- which the Railroad Retirement Board refers to as SSEB -- they aren’t taxable. If you have other income that exceeds Internal Revenue Service limits, part of your tier 1 SSEB payments may be taxable. When you figure your other income, you have to count nontaxable income as well as taxable income, including taxable railroad retirement payments.
To see if part of your SSEB may be taxable, add 50 percent of the annual SSEB pension to your other income. If the total is over $25,000 and you are single, a qualifying widow or widower, or a head of household, half of your benefits may be taxable. For married couples filing a joint return, the cut-off level is $32,000. The percentage of the SSEB that is taxable rises to a maximum of 85 percent when the total reaches $34,000 for single and other filing statuses, and $44,000 for couples filing a joint return. If you are married and file a separate return, the threshold is zero, and 85 percent of your benefits may be subject to federal income tax.
Taxability of Other Benefits
Tier 2 benefits are subject to federal income taxes except for amounts that count as a return of money you contributed as an employee. The same rule applies to any tier 1 benefits you get in excess of your SSEB amount. Vested dual benefits are fully taxable. Supplementary annuity benefits are also fully taxable.
- Social Security Administration: An Overview of the Railroad Retirement Program
- Railroad Retirement Board: Information about the Taxation of Railroad Retirement Annuities
- IRS: Topic 423 -- Social Security and Equivalent Railroad Retirement Benefits
- IRS: Are Your Social Security Benefits Taxable?
- IRS Publication 915: Social Security and Equivalent Railroad Retirement Benefits