Railroad Retirement

Benefits paid under the Railroad Retirement Act fall into two categories. These categories are treated differently for income tax purposes.

The first category is the amount of tier 1 railroad retirement benefits that equals the social security benefit that a railroad employee or beneficiary would have been entitled to receive under the social security system. This part of the tier 1 benefit is the social security equivalent benefit (SSEB) and you treat it for tax purposes like social security benefits. If you received or repaid the SSEB portion of tier 1 benefits during 2002, you will receive Form RRB-1099, Payments by the Railroad Retirement Board (or Form RRB-1042S, Statement for Nonresident Aliens of Payments by the Railroad Retirement Board, if you are a nonresident alien) from the U.S. Railroad Retirement Board (RRB).

For more information about the tax treatment of the SSEB portion of tier 1 benefits and Forms RRB-1099 and RRB-1042S, see Publication 915.

The second category contains the rest of the tier 1 railroad retirement benefits, called the non-social security equivalent benefit (NSSEB). It also contains any tier 2 benefit, vested dual benefit (VDB), and supplemental annuity benefit. Treat this category of benefits, shown on Form RRB-1099-R, as an amount received from a qualified employee plan. This allows for the tax-free (nontaxable) recovery of employee contributions from the tier 2 benefits and the NSSEB part of the tier 1 benefits. (NSSEB and tier 2 benefits, less certain repayments, are combined into one amount called the Contributory Amount Paid on Form RRB-1099-R.) Vested dual benefits and supplemental annuity benefits are fully taxable. See Taxation of Periodic Payments, later, for information on how to report your benefits and how to recover the employee contributions tax free.

Nonresident aliens.   Form RRB-1099-R is used for U.S. citizens, resident aliens, and nonresident aliens. If you are a nonresident alien and your tax withholding rate changed or your country of legal residence changed during the year, you may receive more than one Form RRB-1099-R. To determine your total benefits paid or repaid and total tax withheld for the year, you should add the amounts shown on all Forms RRB-1099-R you received for that year. For information on filing requirements for aliens, see Publication 519, U.S. Tax Guide for Aliens. For information on tax treaties between the United States and other countries that may reduce or eliminate U.S. tax on your benefits, see Publication 901, U.S. Tax Treaties.

Form RRB-1099-R.   The following discussion explains the items shown on Form RRB-1099-R. The amounts shown on this form are before any deduction for:

• Federal income tax withholding,
• Medicare premiums,
• Legal process garnishment payments,
• Legal process assignment payments,
• Recovery of a prior year overpayment of an NSSEB, tier 2 benefit, VDB, or supplemental annuity benefit, and
• Recovery of Railroad Unemployment Insurance Act benefits received while awaiting payment of your railroad retirement annuity.

The amounts shown on this form are after any offset for:

• Work deductions,
• Legal process partition payments,
• Actuarial adjustment,
• Annuity waiver, or
• Recovery of a current-year overpayment of NSSEB, tier 2, VDB, or supplemental annuity benefits.

The amounts shown on Form RRB-1099-R do not reflect any special rules, such as capital gain treatment or the special 10-year tax option for lump-sum payments, or tax-free rollovers. To determine if any of these rules apply to your benefits, see the discussions about them later.

There are three copies of this form. Copy B is to be included with your income tax return. Copy C is for your own records. Copy 2 is filed with your state, city, or local income tax return, when required. See the illustrated Copy B (Form RRB-1099-R) above.

Each beneficiary will receive his or her own Form RRB-1099-R. If you receive benefits on more than one railroad retirement record, you may get more than one Form RRB-1099-R. So that you get your form timely, make sure the RRB always has your current mailing address.

Form RRB–1099–R

Box 1 - Claim Number and Payee Code.   Your claim number is a six- or nine-digit number preceded by an alphabetical prefix. This is the number under which the U.S. Railroad Retirement Board (RRB) paid your benefits. Your payee code follows your claim number and is the last number in this box. It is used by the RRB to identify you under your claim number. In all your correspondence with the RRB, be sure to use the claim number and payee code shown in this box.

Box 2 - Recipient's Identification Number.   This is the social security number (SSN), individual taxpayer identification number (ITIN), or employer identification number (EIN), if known, for the person or estate listed as the recipient.

If you are a resident or nonresident alien who must furnish a taxpayer identification number to the IRS and are not eligible to obtain an SSN, use Form W-7, Application for IRS Individual Taxpayer Identification Number, to apply for an ITIN. The instructions for Form W-7 explain how and when to apply.

Box 3 - Employee Contributions.   This is the amount of taxes withheld from the railroad employee's earnings that exceeds the amount of taxes that would have been withheld had the earnings been covered under the social security system. This amount is the employee's cost (investment in the contract) that you use to figure the tax-free part of the NSSEB and tier 2 benefit you received (the amount shown in box 4). (For information on how to figure the tax-free part, see Partly Taxable Payments under Taxation of Periodic Payments, later.) The amount shown is the total employee contributions, not reduced by any amounts that the RRB calculated as previously recovered. It is the latest amount reported for 2002 and may have increased or decreased from a previous Form RRB-1099-R. If this amount has changed, you may need to refigure the tax-free part of your NSSEB/tier 2 benefit. If this box is blank, it means that the amount of your NSSEB and tier 2 payments shown in box 4 is fully taxable.

If you had a previous annuity entitlement that ended and you are figuring the tax-free part of your NSSEB/tier 2 benefit for your current annuity entitlement, you should contact the RRB for confirmation of your correct employee contributions amount.

Box 4 - Contributory Amount Paid.   This is the gross amount of NSSEB and tier 2 benefit you received in 2002, less any 2002 benefits you repaid in 2002. (Any benefits you repaid in 2002 for an earlier year or for an unknown year are shown in box 8.) This amount is the total contributory pension paid in 2002 and is usually partly taxable and partly tax free. You figure the tax-free part as explained in Partly Taxable Payments under Taxation of Periodic Payments, later, using the latest reported amount of employee contributions shown in box 3 as the cost (investment in the contract).

Box 5 - Vested Dual Benefit.   This is the gross amount of vested dual benefit (VDB) payments paid in 2002, less any 2002 VDB payments you repaid in 2002. It is fully taxable. VDB payments you repaid in 2002 for an earlier year or for an unknown year are shown in box 8.

Note.   The amounts shown in boxes 4 and 5 may represent payments for 2002 and/or other years after 1983.

Box 6 - Supplemental Annuity.   This is the gross amount of supplemental annuity benefits paid in 2002, less any 2002 supplemental annuity benefits you repaid in 2002. It is fully taxable. Supplemental annuity benefits you repaid in 2002 for an earlier year or for an unknown year are shown in box 8.

Box 7 - Total Gross Paid.   This is the sum of boxes 4, 5, and 6. The amount represents the total pension paid in 2002. Include this amount on line 16a of your Form 1040, line 12a of your Form 1040A, or line 17a of your Form 1040NR.

Box 8 - Repayments.   This amount represents any NSSEB, tier 2 benefit, VDB, and supplemental annuity benefit you repaid to the RRB in 2002 for years before 2002 or for unknown years. The amount shown in this box has not been deducted from the amounts shown in boxes 4, 5, and 6. It only includes repayments of benefits that were taxable to you. This means it only includes repayments in 2002 of NSSEB benefits paid after 1985, tier 2 and VDB benefits paid after 1983, and supplemental annuity benefits paid in any year. If you included the benefits in your income in the year you received them, you may be able to deduct the repaid amount. For more information about repayments, see Repayment of benefits received in an earlier year, later.

You may have repaid an overpayment of benefits by returning a payment, by making a cash refund, or by having an amount withheld.

Box 9 - Federal Income Tax Withheld.   This is the total federal income tax withheld from your NSSEB, tier 2 benefit, VDB, and supplemental annuity benefit. Include this on your income tax return as tax withheld. If you are a nonresident alien and your tax withholding rate and/or country of legal residence changed during 2002, you will receive more than one Form RRB-1099-R for 2002. Therefore, add the amounts in box 9 of all Forms RRB-1099-R you receive for 2002 to determine your total amount of U.S. federal income tax withheld for 2002.

Box 10 - Rate of Tax.   If you are taxed as a U.S. citizen or resident alien, this box does not apply to you. If you are a nonresident alien, an entry in this box indicates the rate at which tax was withheld on the NSSEB, tier 2, VDB, and supplemental annuity payments that were paid to you in 2002. If you are a nonresident alien whose tax was withheld at more than one rate during 2002, you will receive a separate Form RRB-1099-R for each rate change during 2002.

Box 11 - Country.   If you are taxed as a U.S. citizen or resident alien, this box does not apply to you. If you are a nonresident alien, an entry in this box indicates the country of which you were a resident for tax purposes at the time you received railroad retirement payments in 2002. If you are a nonresident alien who was a resident of more than one country during 2002, you will receive a separate Form RRB-1099-R for each country of residence during 2002.

Box 12 - Medicare Premium Total.   This is for information purposes only. The amount shown in this box represents the total amount of Part B Medicare premiums deducted from your railroad retirement annuity payments in 2002. Medicare premium refunds are not included in the Medicare total. The Medicare total is normally shown on Form RRB-1099 (if you are a citizen or resident of the United States) or Form RRB-1042S (if you are a nonresident alien). However, if Form RRB-1099 or Form RRB-1042S is not required for 2002, then this total will be shown on Form RRB-1099-R. If your Medicare premiums were deducted from your social security benefits, paid by a third party, and/or you paid the premiums by direct billing, your Medicare total will not be shown in this box.

Help from the RRB.   For assistance with questions about your Form RRB-1099-R, you should contact your nearest RRB field office (if you reside in the United States) or U.S. consulate/embassy (if you reside outside the United States). You can visit the RRB on the Internet at www.rrb.gov.

Repayment of benefits received in an earlier year.   If you had to repay any railroad retirement benefits that you had included in your income in an earlier year because at that time you thought you had an unrestricted right to it, you can deduct the amount you repaid in the year in which you repaid it.

If you repaid $3,000 or less in 2002, deduct it on line 22 of Schedule A (Form 1040). The 2%-of-adjusted-gross-
income limit applies to this deduction. You cannot take this deduction if you file Form 1040A.

If you repaid more than $3,000 in 2002, you can either take a deduction for the amount repaid on line 27 of Schedule A (Form 1040) or you can take a credit against your tax. For more information, see Repayments in Publication 525.

Withholding Tax and Estimated Tax

Your retirement plan distributions are subject to federal income tax withholding. However, you can choose not to have tax withheld on payments you receive unless they are eligible rollover distributions. If you choose not to have tax withheld or if you do not have enough tax withheld, you may have to make estimated tax payments. See Estimated tax, later.

The withholding rules apply to the taxable part of payments you receive from:

• An employer pension, annuity, profit-sharing, or stock bonus plan,
• Any other deferred compensation plan,
• A traditional individual retirement arrangement (IRA), or
• A commercial annuity.

For this purpose, a commercial annuity means an annuity, endowment, or life insurance contract issued by an insurance company.

There will be no withholding on any part of a distribution that (it is reasonable to believe) will not be includible in gross income.

These withholding rules also apply to disability pension distributions received before your minimum retirement age. See Disability Pensions, earlier.

Choosing no withholding.   You can choose not to have income tax withheld from retirement plan payments unless they are eligible rollover distributions. This applies to periodic and nonperiodic payments. The payer will tell you how to make the choice. This choice generally remains in effect until you revoke it.

The payer will ignore your choice not to have tax withheld if:

• You do not give the payer your social security number (in the required manner), or
• The IRS notifies the payer, before the payment is made, that you gave an incorrect social security number.

To choose not to have tax withheld, a U.S. citizen or resident must give the payer a home address in, and have the check delivered to an address in, the United States or its possessions. Without that address, the payer must withhold tax. For example, the payer has to withhold tax if the recipient has provided a U.S. address for a nominee, trustee, or agent to whom the benefits are delivered, but has not provided his or her own U.S. home address.

If you do not give the payer a home address in the United States or its possessions, you can choose not to have tax withheld only if you certify to the payer that you are not a U.S. citizen, a U.S. resident alien, or someone who left the country to avoid tax. But if you so certify, you may be subject to the 30% flat rate withholding that applies to nonresident aliens. This 30% rate will not apply if you are exempt or subject to a reduced rate by treaty. For details, get Publication 519, U.S. Tax Guide for Aliens.

Periodic payments.   Unless you choose no withholding, your annuity or similar periodic payments (other than eligible rollover distributions) will be treated like wages for withholding purposes. Periodic payments are amounts paid at regular intervals (such as weekly, monthly, or yearly) for a period of time greater than one year (such as for 15 years or for life). You should give the payer a completed withholding certificate ( Form W-4P or a similar form provided by the payer). If you do not, tax will be withheld as if you were married and claiming three withholding allowances.

Tax will be withheld as if you were single and were claiming no withholding allowances if:

• You do not give the payer your social security number (in the required manner), or
• The IRS notifies the payer (before any payment is made) that you gave an incorrect social security number.

You must file a new withholding certificate to change the amount of withholding.

Nonperiodic distributions.   For a nonperiodic distribution (a payment other than a periodic payment) that is not an eligible rollover distribution, the withholding is 10% of the distribution, unless you choose not to have tax withheld. You can use Form W-4P to elect to have no income tax withheld. You can also ask the payer to withhold an additional amount using Form W-4P. The part of any loan treated as a distribution (except an offset amount to repay the loan), explained later, is subject to withholding under this rule.

Eligible rollover distribution.   If you receive an eligible rollover distribution, 20% of it generally will be withheld for income tax. You cannot choose not to have tax withheld from an eligible rollover distribution. However, tax will not be withheld if you have the plan administrator pay the eligible rollover distribution directly to another qualified plan or an IRA in a direct rollover. For more information about eligible rollover distributions, see Rollovers, later.

Estimated tax.   Your estimated tax is the total of your expected income tax, self-employment tax, and certain other taxes for the year, minus your expected credits and withheld tax. Generally, you must make estimated tax payments for 2003 if your estimated tax, as defined above, is $1,000 or more and you estimate that the total amount of income tax to be withheld will be less than the smaller of:

1. 90% of the tax to be shown on your 2003 return, or
2. 100% of the tax shown on your 2002 return.

If your adjusted gross income for 2002 was more than $150,000 ($75,000 if your filing status is married filing separately), substitute 110% for 100% in (2) above. For more information, get Publication 505, Tax Withholding and Estimated Tax.

In figuring your withholding or estimated tax, remember that a part of your monthly social security or equivalent tier 1 railroad retirement benefits may be taxable. See Publication 915. You can choose to have income tax withheld from those benefits. Use Form W-4V, Voluntary Withholding Request, to make this choice.

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