Where Do Tier 1 & Tier 2 Taxes Go on My 1040?

Overpaid railroad retirement taxes can come back as tax credits.
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When you work for a railroad, you're not subject to the same tax withholding rules as most other taxpayers. The Federal Insurance Contributions Act, which defines how money gets taken out of paychecks for Social Security and Medicare, doesn't apply to you. Instead, your paychecks and your retirement and pension are covered by the Railroad Retirement Tax Act, which has tiers of taxes.

RRTA Taxes

Tiers 1 and 3 of RRTA tax are roughly equivalent to Social Security and Medicare withholding. In addition, as a railroad employee, you also make contributions to a railroad employee pension system through your Tier 2 taxes. Tier 1 taxes the first $113,700 of your income at 6.2 percent, with your employer matching it, while Tier 3 is unlimited and carries a 1.45 percent rate paid by you and your employer. The Tier 2 pension benefit taxes your first $84,300 of earnings at 4.4 percent, with your employer paying a 12.6 percent rate.

Regular Contributions

Tier 1, 2 and 3 of your RRTA tax normally aren't taxable. Like Social Security and Medicare tax, tiers 1 and 3 essentially don't matter when it comes to your taxes -- you pay tax on the income you used to pay your share of the taxes. Tier 2 is also not taxable, much like how your contributions to a workplace 401(k) aren't taxed.

Overpayment with Multiple Employers

When you have multiple railroad employers, it's possible that you could end up paying too much RRTA tax if you have an above-the-threshold income and each one withholds tax from you as if you hadn't earned any money elsewhere. Your excess Tier 1 tax comes back as a credit on line 69 of your 1040 tax return. Extra Tier 2 taxes also come back as a credit, but you need to file Form 843 to collect them.

Overpayment with Single Employer

If you worked for only one employer during the year and you paid too much Tier 1 or 2 RRTA tax, let your employer know. It should correct the error in your next paycheck. If it doesn't, you can attach Form 843 to your tax return and request a refund from the IRS.

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