Friday, March 15, 2024

How To File Taxes For Railroad Employee

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In order to reduce costs, some railroad employers have negotiated agreements with their employees to reduce the size of the crew operating the train. In return for agreeing to reduce the size of the crew, the employees receive additional payments from the employer.

The employer agrees to set aside a certain amount of money throughout the course of the year, based on the number of trains operated with a reduced crew. Then, after year-end, each employee who participated in the operation of a train with a reduced crew receives a pro rata share of the funds set aside by the employer.

Employers have attempted to classify these payments as other than compensation for services, and therefore as not subject to RRTA. Employers generally base their position on Revenue Ruling 58-301, 1958-1 C.B. 23, modified and superseded by, Rev. Rul. 2004-110, 2004-2 C.B. 960.

If these types of payments are found, it is suggested that a request for Technical Advice be submitted because of the fact intensive nature of this issue. Revenue Ruling 75-44, is not sufficient to support this type of issue.

How Are Railroad Retirement Benefits Calculated

  • Railroad Retirement benefits are based on months of service and earnings credit.
  • Earnings are creditable up to certain annual maximums on the amount of compensation subject to railroad retirement taxes.

Railroad employees and employers pay a Tier I tax which is the same as the Social Security tax. Employees and employers also pay a Tier II tax which contributes to financing Railroad Retirement benefit payments in excess of coverage provided under Social Security.

2022 Employee Tax Withholding:

  • Tier I – 6.20 percent
  • Tier II 4.90 percent
  • Medicare – 1.45 percent *Starting in 2013, an additional tax of 0.9 percent will be withheld by the employer on earnings over $200,000.

2022 Employer Tax Withholding:

What Amount Of Savings Can Railroad Employees Expect

Thanks to this ruling, a tax savings of 7.65% applies for railroad employees who exercise non-qualified stock options and make less than the Social Security wage cap of $128,400. While higher income railroad employees wont save as much, theyll still avoid the 1.45% Medicare tax equivalent within their Tier 1 withholding . For individuals earning over $200,000 and married taxpayers earning more than $250,000, there are also savings from avoiding the additional 0.9% Medicare tax enacted on high-income individuals under the ACA.

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Computer Audit Specialist Applications

  • Obtain the following computer information:
  • RRB Forms BA-3a, BA-4, BA-9 and BA-10 tapes
  • Payroll master file or record layouts
  • Reconcile the W-2’s to the 1099’s to identify the conversion of workers from employees to independent contractors and/or to identify payments being made to employees who have been excluded from RRTA taxation.
  • Reconcile the Form W-2 tape to the BA-3a tape, taking into account 401 contributions and group term life insurance calculations. This may identify payments reported on the BA-3a but excluded from RRTA taxation.
  • Reconcile the W-2 tape to the BA-9 tape. Discrepancies may indicate severance or dismissal payments which have been excluded from RRTA taxation.
  • Reconcile the W-2 tape to the BA-3a tape. Discrepancies may indicate sick pay payments which have been excluded from RRTA taxation.
  • Statutory Period Of Limitations

    TsekPay

    Form CT-1 is an annual return, due by the last day of the second month following the end of the calendar year see Treas. Reg. § 31.6071-1. The normal statutory period of limitations expires three years after the due date, or the date filed, whichever is later.

    The presumptive filing date pertaining to Form 941, found at IRC § 6501, DOES NOT apply to Form CT-1.

    Various courts have considered the question of whether or not the filing of Form 941 starts the running of the statute of limitations with respect to Form CT-1. Although the IRS has been sustained in some courts in its position that the filing of a Form 941 does not start the running of the statutory period of limitations with respect to the CT-1 at least one court has ruled otherwise. The court found that the Form 941 provided sufficient information for the IRS to assess the RRTA taxes, and, therefore, the three year statute for the Form CT-1 had started with the filing of the Form 941. As a result, aggressive action should be taken to protect the statutory period of limitations in all situations.

    Form SS-1OThe statutory period of limitations for RRTA purposes is extended using Form SS-10.

    Questions or concerns with regard to extending the RURT statute should be discussed with the Ground Transportation Technical Advisor. The Ground Transportation Technical Advisor can assist in obtaining advice from Counsel.

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    What Is The Difference Between Fica And Rrta

    FICA applies to all remuneration for employment, including the cash value of all remuneration paid in any medium other than cash, which is why non-qualified stock options are subject to FICA taxes. However, the RRTA applies to any form of money remuneration. In Wisconsin Central Ltd. v. United States the court has ruled that stock options, even non-qualified stock options, are not money and therefore not subject to RRTA taxes.

    What Are The Benefits To You

    The Railroad Retirement Board website illustrates prospective benefits under the two systems. Assuming employees have similar work histories and receive maximum monthly benefits, a person receiving Railroad Retirement would collect $2,700 a month. Under Social Security, the person would receive $1,400 per month.

    If you leave the railroad within 5 years of employment, your Tier I benefit will be transferred in total to the Social Security system. Employees with at least 10 years of creditable railroad service, or at least 5 years of creditable railroad service after 1995, are vested in Railroad Retirement and eligible for retirement and disability annuities.

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    In The Service Of One Or More Employers

    The definition of “employee, for RRTA purposes, is very similar to the definition of an employee for FICA purposes. Treas. Reg. § 31.3231-1 defines a worker as an employee if he or she is:

  • Subject to the continuing authority of the employer who supervises and directs the manner in which the employee’s services are rendered,
  • Rendering professional or technical services integrated into the staff of the employer
  • Rendering other personal services on the property used in the operations of the employer which are an integral part of those operations.
  • With respect to 2 and 3 above, an individual performing services as an independent contractor may be, with regard to such services, in the service of an employer within the meaning of these paragraphs. See Treas. Reg. § 31.3231-1.

    Treas. Reg. § 31.3231-1 goes onto provide additional facts to be considered, including:

    Principally Engaged In Railroad Activities

    How to Compute Individual Income Tax (TRAIN LAW)

    Since, as stated, segregation is not applicable to a company that is principally engaged in railroad activities, you will have to determine the status of a given company by some or all of the following comparisons.

    • Facilities in use
    • Character of customers

    Because the objective is to cover under RRTA all employees that perform some railroad services, it is important that the tests clearly reflect the business activities of the company. The best tests to accomplish this purpose must be selected on a case-by-case basis.

    • Illustration – In the case of an office building, test by output and character of tenants . It is immaterial to the latter test that non-RRTA employers include those owned or controlled by RRTA employers. The ultimate test is whether the building primarily serves RRTA employers and if so, it is not eligible for segregation.

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    Railroad Employees Save Taxes After Supreme Court Ruling

    A recent Supreme Court ruling provides potential tax savings for railroad employees. Wisconsin Central Ltd. v. United States holds that stock-based compensation provided to railroad employees is exempt from federal employment taxes. According to the 5-4 ruling, for employees of railroad companies such as Union Pacific and BNSF, stock option income is not considered money remuneration under the Railroad Retirement Act and, therefore, not subject to payroll taxes.

    Effects On The Budget

    Under this option, revenues would increase by $411 billion from 2019 through 2028, the staff of the Joint Committee on Taxation estimates. That increase would be entirely due to higher taxes on the recipients of Social Security and Railroad Retirement benefits. Increases in revenues would be greater after temporary provisions of the 2017 tax act that lower ordinary rates and increase the standard deduction expire at the end of 2025.

    The estimate reflects differences in the effects of the option among recipients of Social Security and Railroad Retirement benefits. The option would increase taxable income for many recipients both before and after they had fully recovered their past contributions to the system because the taxable portion of their benefits would increase. Some recipients would still not pay taxes on those benefits because they would have sufficient deductions and could make other adjustments, such that their overall taxable income would remain low enough for them to owe no federal income taxes.

    The estimate for this option is uncertain because the underlying projection of Social Security and Railroad Retirement benefits is uncertain, as is the projection of payroll contributions that will determine both the benefit amount and the basis for future retirees. The estimate also relies on estimates of how taxpayers would shift their participation in the labor force in response to changes in their after-tax income from benefits.

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    Railroad Retirement Tax Act Desk Guide

    • Memorandum of Understanding
    • On-site Information Exchange
    • Receiver or Trustee as Employer
    • Railroad Associations
    • In the Service of One or More Employers
    • Comparison of RRTA to FICA
    • Included and Excluded
    • Computer Audit Specialist Applications
    • Reconciliation of CT-1’s
    • Principally Engaged in Railroad Activities
    • Form 4665, Form 4666, Form 886A, Form 2504, Form 2297, Form 3363
    • BA-3a Annual Report of Creditable Compensation
    • BA-4 Report of Creditable Compensation Adjustments
    • BA-9 Report of Separation Allowance or Severance Pay
    • BA-10 Report of Miscellaneous Compensation and Sick Pay
    • Form G-241 Summary Statement of Quarterly Report of Railroad Retirement
    • Supplemental Annuity Tax Liabilities
    • Form G-245 Summary Statement of Quarterly Report of Railroad Retirement
    • Supplemental Tax Credits
    • Form G-440 Report Specifications Sheet
    • Penalties, Interest Free Adjustments, Abatements

    Social Security And Railroad Retirement Benefits

    Self Employment Tax Table 2017

    If your social security or railroad retirement benefits were taxed on your federal return, you may take a deduction for those benefits on your North Carolina individual income tax return. You may take this deduction because this income has already been included as part of your federal adjusted gross income and North Carolina does not tax this income. This deduction will increase your refund or decrease the amount you must pay.

    Any social security benefits you received that are not included in your federal adjusted gross income cannot be deducted on your North Carolina return. If your federal adjusted gross income includes social security benefits, enter the taxable amount of social security benefits on Form D-400 Schedule S, Part B Deductions from Federal Adjusted Gross Income, Line 18. The total deductions from federal adjusted gross income entered on Form D-400 Schedule S, Line 38, also needs to be entered on Form D-400, Line 9.

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    Where Do I Enter Railroad Tier I And Tier Ii On My Taxes

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

    Submitted:Category:

    This IRS publication provides information concerning the taxability of the Non Social Security Equivalent Benefit portion of tier 1, tier 2, vested dual benefit, and supplemental annuity benefits shown on the Form RRB-tax statement.If you are 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 – to determine taxable part of your to be reported on the line 20b.And Non Social Security Equivalent Benefit portion of tier 1, tier 2, vested dual benefit, and supplemental annuity benefits – on lines 16a and 16bIf any federal taxes were withheld – you should report that amount on the line 62. See some explanation of your form here- Please let me know if you need any help.

    Railroad employers are subject to a separate and distinct system of employment taxes from the Insurance Contributions Act and the Federal Unemployment Tax Act 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.

    Tax withheld should be reported on the line 62.

    Comparison Of Rrta To Fica

    The definition of compensation for RRTA purposes is found at IRC § 3231, and, while there are historical differences between the FICA and RRTA statutes, there are also significant similarities. Legislation enacted over the years has made the RRTA Tier I tax identical to the FICA tax as well as conforming the Tier I wage ceiling to the FICA wage ceiling.

    Along with conforming the structure of the RRTA to parallel that of the FICA, the exclusions from the definition of compensation under RRTA, with few exceptions, mirror the exclusions from the definition of wages under FICA. These exclusions from compensation include non-monetary benefits such as fringe benefits, meals and lodging excludable under IRC § 119, and employer-paid life insurance premiums for group-term life insurance under $50,000.

    In amending RRTA, Congress often indicated the purpose was to provide conformity to FICA. Congress has added references to FICA provisions in the RRTA definition of successor employer and the rules for non-qualified deferred compensation and 3231, respectively). In addition, Tier I benefits are designed to be equivalent to social security benefits, and are subject to federal income taxation in the same manner as social security benefits.

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    The National Railroad Retirement Investment Trust

    One unique aspect of the Railroad Retirement system is the private investment of some of its funds through the National Railroad Retirement Investment Trust . The trust is an independent organization, separate from the federal government. It is run by a board of trustees composed of three members selected by rail labor, three members selected by rail management, and an independent member selected by the other trustees . In fiscal year 2007, the NRRIT transferred $1.39 billion to the Treasury for payment of benefit obligations .

    The program’s investments are diversified among a variety of asset classes. The NRRIT’s investment guidelines are frequently reexamined and adjusted, but the targeted investment allocations for the NRRIT in fiscal year 2007 are:

    U.S. Equity40 percent

    U.S. Fixed Income21 percent

    Non-U.S. Fixed Income..7 percent

    Convertibles2 percent

    Cash….2 percent

    In fiscal year 2007, the net rate of return on assets managed by the NRRIT was 16.38 percent, compared with the 5.3 percent return experienced by the Social Security Trust Fundwhich is limited to investments in federal securitiesduring calendar year 2007 .

    Deduction Of Tax From Compensation

    How to Fill Out a 941 Tax Form?

    Requirement

    The taxes imposed by section 3201 shall be collected by the employer of the taxpayer by deducting the amount of the taxes from the compensation of the employee as and when paid. An employer who is furnished by an employee a written statement of tips pursuant to section 6053 to which paragraph of section 3231 is applicable may deduct an amount equivalent to such taxes with respect to such tips from any compensation of the employee under his control, even though at the time such statement is furnished the total amount of the tips included in statements furnished to the employer as having been received by the employee in such calendar month in the course of his employment by such employer is less than $20.

    Indemnification of employer

    Every employer required under subsection to deduct the tax shall be liable for the payment of such tax and shall not be liable to any person for the amount of any such payment.

    Special rule for tips

    If the taxes imposed by section 3201, with respect to tips which are included in written statements furnished in any month to the employer pursuant to section 6053, exceed the compensation of the employee from which the employer is required to collect the taxes under paragraph , the employee may furnish to the employer on or before the 10th day of the following month applies, on or before the 30th day of the following quarter) an amount of money equal to the amount of the excess.

    In general

    subsection shall not apply,

    Subsec. .

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    What Are Employment Tax Returns

  • Form 941, Form 943 and Form 944 are filed by employers of individuals to report:

  • The amount of federal income tax withheld from the employees wages

  • The employers and employees’ shares of social security and Medicare taxes

  • The amount of Additional Medicare Tax withheld from employees’ wages

  • The amount of any non-refundable Qualified Small Business Payroll Tax Credit for Increasing Research Activities

  • Receiver Or Trustee As Employer

    The definition of employer, at IRC § 3231, also includes:

    “…Any receiver, trustee, or other individual or body, judicial or otherwise, when in the possession of the property or operating all or any part of the business of any such employer

    This would only apply to individuals who would be employees if the property or business operation had continued in the possession of the preceding employer. This situation could occur, for example, if a railroad sought protection through the bankruptcy court, and the bankruptcy court appointed a trustee to operate the company. The trustee would be a railroad employer of the carrier’s employees.

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    Severance Pay/ Termination Pay

    Railroad employers have been very aggressive in attempts to treat severance pay and/or termination pay as not subject to RRTA.

    Some of the arguments for this are…

  • Severance/termination pay represents the buyout of a contract right, and is not taxable based on Revenue Ruling 58-301, 1958-1 C.B. 23.
  • Severance payments are not subject to RRTA tax because the payments represent supplement unemployment benefit payments . See CSX Corp. et. al v. United States, 518 F.3d 1328 .
  • Severance payments made after the year of termination constitute nonqualified deferred compensation under IRC § 3121 as incorporated in IRC § 3231.
  • With regard to the first argument, the government takes the position that Revenue Ruling 75-44, 1975-1 C.B. 15, is controlling, and that the payments represent compensation for past services rather than the buyout of contract rights.

    The third argument is that the payments are compensation in the form of periodic severance pay and if made beyond the year of termination constitutes nonqualified deferred compensation under IRC § 3121 as incorporated in IRC § 3231. The Services position is that payments made under a severance plan are not deferred compensation -1, and Kraft Foods v. United States, 58 Fed. Cl. 507)

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