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Friday, April 8, 2011

OH, NO! I’VE GOT RETIREMENT INCOME FROM THE RRB!

When I was younger I didn’t realize that the song “I’ve Been Workin’ on the Railroad” would impact my career.  The song had a real bounce to it, and it was fun to sing it and pull weeds out of the garden at the same time or work the soil around the tomato plants.

Even as I entered the workforce I didn’t realize that income was reported on so many different forms.  I thought everyone worked under a W2 until you retired and received social security payments.  If you were lucky, you had a retirement plan, but they were mostly a mystery to me and I didn’t think much about them. Of course, I also thought taxes were a piece of cake since all I ever filed was a 1040EZ.

The Railroad Retirement Board (RRB), as I discovered, is an independent agency in the federal government.  It administers benefit programs for the nation’s railroad workers and their families.  According to their website, nearly $10.8 billion in retirement-survivor benefits were paid to about 582,000 beneficiaries. 

During the 1930s the social security system was in its planning stages, and railroad workers wanted a separate system to continue and broaden their existing programs under a national plan.  And so the Railroad Retirement Acts were passed into law. 

Legislation in the early 70s restructured railroad retirement benefits into two tiers. The first tier is based on combined railroad retirement and social security benefits, using the SSB formulas.  The second tier is based on railroad service only.  It seems to be comparable to pensions paid over and above social security benefits in other industries.

When I began working in the tax software arena, I didn’t even know what depreciation was or that you could do that to a cow, let alone that there were passive activity rules or two tiers to railroad benefits.  Entering the reporting information from the RRB forms was a quandary since many beneficiaries would have income from Form RRB-1099, Form RRB-1099-R, and Form SSA-1099.

Figuring out which form did what was confusing at first. Both the RRB-1099 and 1099-R came from the RRB and they looked much the same, at least at first glance.  They appeared to be multiple copies of the same thing until closer inspection revealed that the amounts were different, as were their descriptions. 

Form RRB-1099 reports the Social Security Equivalent Benefit portion of tier one, along with special guaranty benefits paid and repaid and any related income tax withheld.   At the same time, the taxpayer may have also received SSA-1099 for social security benefits received for the same year.

NOTE: In Drake Software 2010 the RRB-1099 amounts are entered on the RRP screen.  Social security benefits, if received, are entered on the SSA screen.

Form RRB-1099-R reports the total gross payments, repayments, and related income tax withheld from the Non-Social Security Equivalent Benefit portion of tier one, tier 2, vested dual benefit, and supplemental annuity payments.  These payments are treated as private pensions for tax purposes.

NOTE:  In Drake Software 2010 the RRB-1099-R amounts are entered on the RRB screen.

A quick way to distinguish between Form RRB-1099 and RRB-1099-R is to look at the form number in the bottom left corner.  Another way is to look at the boxes and their descriptions. The RRB-1099 begins with Gross Social Security Equivalent Benefit Portion of Tier 1 Paid in the Year Shown Above, while the RRB-1099-R begins with Employee Contributions.

For the unwary preparer who has not seen these forms before, missed data entry can quickly turn into letters from the IRS.  Reason enough to be very sure of what is being presented by the taxpayer before entering and e-filing the return.

For more information about the RRB and its forms, please see

v     IRS Publication 17, Your Federal Income Tax, Chapter 11,
v     IRS Publication 575, Pension and Annuity Income,
v     IRS Publication 915, Social Security and Equivalent Railroad Benefits, and
v     The RRB website, http://www.rrb.gov/default.asp.