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Lev
Lev, Tax Advisor
Category: Tax
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Experience:  Taxes, Immigration, Labor Relations
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Where do I enter railroad Tier I and Tier II taxes?

Resolved Question:

Where do I enter railroad Tier I and Tier II on Form 1040?

Submitted: 8 years ago.
Category: Tax
Expert:  Lev replied 8 years ago.

IRS Publication 915, Social Security and Equivalent Railroad Retirement Benefits

This IRS publication provides information concerning the taxability of the Social Security Equivalent Benefit (SSEB) portion of tier 1 railroad retirement benefits and special guaranty benefits shown on the Form RRB-1099
IRS Publication 575, Pension and Annuity Income

This IRS publication provides information concerning the taxability of the Non Social Security Equivalent Benefit (NSSEB) portion of tier 1, tier 2, vested dual benefit, and supplemental annuity benefits shown on the Form RRB-1099-R tax statement.

If you are filing the form 1040 - http://www.irs.gov/pub/irs-pdf/f1040.pdf
You will report your Social Security Equivalent Benefit on lines 20a and 20b - it is reported the same way as social security benefits.
Please use worksheet in instructions on the page 27 - http://www.irs.gov/pub/irs-pdf/i1040.pdf to determine taxable part of your pension to be reported on the line 20b.

And Non Social Security Equivalent Benefit (NSSEB) portion of tier 1, tier 2, vested dual benefit, and supplemental annuity benefits - on lines 16a and 16b

If any federal taxes were withheld - you should report that amount on the line 62.
See some explanation of your form here- http://www.rrb.gov/pdf/PandS/citizenB08.pdf

Please let me know if you need any help.

Customer: replied 8 years ago.

Thank you for answering me. I am still confused. I am trying to do my son's taxes. He works for the railroad. He is 35 and does not receive a pension. On his W-2 from the railroad, he has $1675 in contributions for 2008. His W-2 lists RRTA Tier I wages, RRTA Medicare wages, and RRTA II wages which all reflect the same amount. The RRTA Tier I tax withheld lists an amount, the RRTA Medicare tax withheld lists a different amount and RRTA Tier II tax withheld lists yet another amount. Even after your answer, I still do not know where to list the tax withheld amounts on Form 1040. He did not receive either form you listed above.

Expert:  Lev replied 8 years ago.

Railroad employers are subject to a separate and distinct system of employment taxes from the Federal Insurance Contributions Act (FICA) and the Federal Unemployment Tax Act (FUTA) systems covering most other employers. Parts of the system are the responsibility of the IRS, and parts of the system are the responsibility of the Railroad Retirement Board, an independent governmental agency.

Because this is a separate system for railroad employers, payments subject to railroad retirement taxes are specifically excepted from FICA, FUTA, and the Self-Employment Contributions Act (SECA).

When looking at the rates for RRTA, and comparing them to the rates used for social security, it is readily apparent that a railroad employer is subject to a much higher rate of tax than a non-railroad employer.

Tier I tax is the equivalent of FICA and Medicare, and is computed in the same manner, using the same annual wage base and tax rates. It is assessed equally on the employer and employee.
Tier II tax uses a separate annual wage base and tax rate from those applicable for Tier I. In addition, the tax is not assessed equally on the employer and employee. Instead, the employer pays a significantly greater share of this tax.

Railroad employers use Form W-2 to report wage payments to employees and to SSA. RRTA taxes are shown in Box 14, and Boxes 3, 4, 5, 6 and 7, relating to FICA and Medicare, should be blank.

Customer: replied 8 years ago.

Forgive me for hounding you and I appreciate your answers, however, I still do not understand if I need to list the Tier I or Tier II taxes that were withheld on his W-2 on Form 1040 and if so, where?

Expert:  Lev replied 8 years ago.

Railroad employers must file Form W-2 to report their employees' wages and income tax withholding in boxes 1 and 2 - these will report taxable wages and federal tax withheld.

Taxable wages are reported on the line 7 of the form 1040 - http://www.irs.gov/pub/irs-pdf/f1040.pdf.

Tax withheld should be reported on the line 62.

For employees covered by RRTA tax, you also must report the Tier I and Tier II taxes withheld in box 14 of Form W-2. Label them "Tier I tax" and "Tier II tax." Boxes 3, 4, 5, 6, and 7 apply only to covered social security and Medicare employees and are not to be used to report railroad retirement wages and taxes.

Generally - you do not need to worry about reporting these taxes.

Lev and other Tax Specialists are ready to help you
Customer: replied 8 years ago.
Thank you for your help.