Social Security & Equivalent
Railroad Retirement Benefits

This discussion explains the federal income tax rules for social security benefits and equivalent tier 1 railroad retirement benefits.

Social security benefits include monthly survivor and disability benefits. They do not include supplemental security income payments (SSI) which are not taxable.

Equivalent tier 1 railroad retirement benefits are the part of tier 1 benefits that a railroad employee or beneficiary would have been entitled to receive under the social security system. They are commonly called the social security equivalent benefit (SSEB) portion of tier 1 benefits.

If you received these benefits during 2001, you should have received a Form SSA-1099 or Form RRB-1099 (Form SSA-1042S or Form RRB-1042S if you are a nonresident alien).

Note. When the term benefits is used in this section, it applies to both social security benefits and equivalent tier 1 railroad retirement benefits.

Legislation in 2000 removed the earnings test for social security recipients who work and are ages 65 through 70. This change has no effect on the federal income tax rules for social security benefits.

Are Any of Your Benefits Taxable?

To find out whether any of your benefits are taxable, compare the base amount for your filing status to the total of:

1. One-half of your benefits, plus
2. All your other income, including tax-exempt interest.

When making this comparison, do not reduce your other income by any exclusions for:

• Interest from qualified U.S. savings bonds,
• Employer-provided adoption benefits,
• Foreign earned income or foreign housing, or
• Income earned in American Samoa or Puerto Rico by bona fide residents.

Figuring total income. To figure the total of one-half of your benefits plus your other income, use the worksheet shown later in this discussion. If the total is more than your base amount, part of your benefits may be taxable.

If the only income you received during 2001 was your social security or SSEB portion of tier 1 railroad retirement benefits, your benefits generally are not taxable and you probably do not have to file a return. If you have income in addition to your benefits, you may have to file a return even if none of your benefits are taxable.

If you are married and file a joint return for 2001, you and your spouse must combine your incomes and your benefits to figure whether any of your combined benefits are taxable. Even if your spouse did not receive any benefits, you must add your spouse's income to yours to figure whether any of your benefits are taxable.

Base Amount

Your base amount is:

• $25,000 if you are single, head of household, or qualifying widow(er),
• $25,000 if you are married filing separately and lived apart from your spouse for all of 2001,
• $32,000 if you are married filing jointly, or
• $-0- if you are married filing separately and lived with your spouse at any time during 2001.

Worksheet. You can use the following worksheet to figure the amount of income to compare with your base amount. This is a quick way to check whether some of your benefits may be taxable.

Repayment of Benefits

Any repayment of benefits you made during 2001 must be subtracted from the gross benefits you received in 2001. It does not matter whether the repayment was for a benefit you received in 2001 or in an earlier year. If you repaid more than the gross benefits you received in 2001, see Repayments More Than Gross Benefits, later.

Your gross benefits are shown in box 3 of Form SSA-1099 or Form RRB-1099. Your repayments are shown in box 4. The amount in box 5 shows your net benefits for 2001 (box 3 minus box 4). Use the amount in box 5 to figure whether any of your benefits are taxable.

Tax Withholding and Estimated Tax

You can choose to have federal income tax withheld from your social security and/or the SSEB portion of your tier 1 railroad retirement benefits. If you choose to do this, you must complete a Form W-4V, Voluntary Withholding Request. You can choose withholding at 7%, 10%, 15%, or 27% of your total benefit payment.

If you do not choose to have income tax withheld, you may have to request additional withholding from other income, or pay estimated tax during the year. For details, get Publication 505, Tax Withholding and Estimated Tax, or the instructions for Form 1040-ES.

How To Report Your Benefits

If part of your benefits is taxable, you must use Form 1040 or Form 1040A. You cannot use Form 1040EZ.

Reporting on Form 1040. Report your net benefits (the amount in box 5 of your Form SSA-1099 or Form RRB-1099) on line 20a and the taxable part on line 20b. If you are married filing separately and you lived apart from your spouse for all of 2001, also enter "D" to the right of the word "benefits" on line 20a.

Reporting on Form 1040A. Report your net benefits (the amount in box 5 of your Form SSA-1099 or Form RRB-1099) on line 14a and the taxable part on line 14b. If you are married filing separately and you lived apart from your spouse for all of 2001, enter "D" to the right of the word benefits on line 14a.

Benefits not taxable. If none of your benefits are taxable, do not report any of them on your tax return. However, if you are married filing separately and you lived apart from your spouse for all of 2001, make the following entries. On Form 1040, enter "D" to the right of the word "benefits" on line 20a and "-0-" on line 20b. On Form 1040A, enter "D" to the right of the word benefits on line 14a and "-0-" on line 14b.

How Much Is Taxable?

If part of your benefits is taxable, how much is taxable depends on the total amount of your benefits and other income. Generally, the higher that total amount, the greater the taxable part of your benefits.

Maximum taxable part. The taxable part of your benefits usually cannot be more than 50%. However, up to 85% of your benefits can be taxable if either of the following situations applies to you.

• The total of one-half of your benefits and all your other income is more than $34,000 ($44,000 if you are married filing jointly).
• You are married filing separately and lived with your spouse at any time during 2001.

Which worksheet to use. A worksheet to figure your taxable benefits is in the instructions for your Form 1040 or 1040A. You can use either that worksheet or Worksheet 1 in Publication 915, Social Security and Equivalent Railroad Retirement Benefits, unless any of the following situations applies to you.

1. You contributed to a traditional individual retirement arrangement (IRA) and your IRA deduction is limited because you or your spouse is covered by a retirement plan at work. In this situation, you must use the special worksheets in Appendix B of Publication 590 to figure both your IRA deduction and your taxable benefits.
2. Situation (1) does not apply and you take an exclusion for interest from qualified U.S. savings bonds (Form 8815), for adoption benefits (Form 8839), for foreign earned income or housing (Form 2555 or Form 2555-EZ), or for income earned in American Samoa (Form 4563) or Puerto Rico by bona fide residents. In this situation, you must use Worksheet 1 in Publication 915 to figure your taxable benefits.
3. You received a lump-sum payment for an earlier year. In this situation, also complete Worksheet 2 or 3 and Worksheet 4 in Publication 915.

Lump-Sum Election

You must include the taxable part of a lump-sum (retroactive) payment of benefits received in 2001 in your 2001 income, even if the payment includes benefits for an earlier year.

This type of lump-sum benefit payment should not be confused with the lump-sum death benefit that both the SSA and RRB pay to many of their beneficiaries. No part of the lump-sum death benefit is subject to tax.

Generally, you use your 2001 income to figure the taxable part of the total benefits received in 2001. However, you may be able to figure the taxable part of a lump-sum payment for an earlier year separately, using your income for the earlier year. You can elect this method if it lowers your taxable benefits. See Publication 915 for more information.

Repayments More Than Gross Benefits

In some situations, your Form SSA-1099 or Form RRB-1099 will show that the total benefits you repaid (box 4) are more than the gross benefits (box 3) you received. If this occurred, your net benefits in box 5 will be a negative figure (a figure in parentheses) and none of your benefits will be taxable. If you receive more than one form, a negative figure in box 5 of one form is used to offset a positive figure in box 5 of another form for that same year.

If you have any questions about this negative figure, contact your local Social Security Administration office or your local U.S. Railroad Retirement Board field office.

Joint return. If you and your spouse file a joint return, and your Form SSA-1099 or RRB-1099 has a negative figure in box 5 but your spouse's does not, subtract the amount in box 5 of your form from the amount in box 5 of your spouse's form. You do this to get your net benefits when figuring if your combined benefits are taxable.

Repayment of benefits received in an earlier year. If the total amount shown in box 5 of all of your Forms SSA-1099 and RRB-1099 is a negative figure, you can take an itemized deduction for the part of this negative figure that represents benefits you included in gross income in an earlier year.

If this deduction is $3,000 or less, it is subject to the 2%-of-adjusted-gross-income limit that applies to certain miscellaneous itemized deductions. Claim it on line 22, Schedule A (Form 1040).

If this deduction is more than $3,000, you have some special instructions to follow. Get Publication 915 for those instructions.

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