How to File Taxes for a Railroad Employee

Filing taxes as a railroad employee comes with unique considerations. Unlike most workers who pay into Social Security, railroad employees contribute to the Railroad Retirement Board (RRB), which has its own tax structure and benefits. Understanding these differences ensures accurate tax returns and helps maximize deductions.

Railroad Retirement Tiers

Railroad employees are subject to a retirement system separate from Social Security, with contributions divided into multiple tiers. These tiers determine how benefits are taxed and reported.

Tier 1

This portion of the Railroad Retirement system functions similarly to Social Security. Employees and employers each contribute 6.2% of wages, up to an annual cap of $168,600 for 2024. Tier 1 benefits may be partially taxable based on overall income.

If a taxpayer’s combined income—including adjusted gross income, tax-exempt interest, and half of their Tier 1 benefits—exceeds $25,000 for single filers or $32,000 for joint filers, a portion of the benefits becomes taxable, ranging from 50% to 85%. Retirees receive Form RRB-1099, which details the taxable and non-taxable portions of their benefits. Those still working will see Tier 1 contributions reflected on their W-2 under “RRTA taxes.”

Tier 2

Tier 2 provides additional retirement benefits, funded by both employee and employer contributions at a higher rate. Employees contribute 4.9% of earnings, while employers pay 13.1%, with a wage base limit of $168,600 for 2024. Unlike Tier 1, Tier 2 benefits are taxed similarly to private pensions.

Retired railroad workers receive Form RRB-1099-R, which reports these payments. The taxable portion is determined using either the General Rule or the Simplified Method, which spreads the tax burden over time. Workers still employed will see these deductions listed separately on their W-2. Since Tier 2 contributions are not deductible, understanding their impact on retirement income taxation is essential.

Additional Medicare Tax

High-earning railroad employees must account for the Additional Medicare Tax, which applies to wages exceeding specific thresholds. This 0.9% tax applies to earnings over $200,000 for single filers and $250,000 for married joint filers, with no employer match.

Unlike standard Medicare taxes, this extra levy is not withheld until wages surpass the threshold within the tax year. Employees may need to make estimated tax payments if their total income—including investment earnings or self-employment wages—pushes them above the limit. Excess withholding can be recovered when filing. Those who owe additional amounts can adjust their withholding through Form W-4 or make quarterly estimated tax payments using Form 1040-ES.

Key Documents

Filing taxes as a railroad employee requires gathering specific forms that report earnings, deductions, and benefits. The most common document is Form W-2, detailing wages, Railroad Retirement Tax Act (RRTA) taxes, and Medicare contributions. Unlike standard W-2s, railroad employees will see separate entries for Tier 1 and Tier 2 taxes.

For retirees, the Railroad Retirement Board (RRB) provides Form RRB-1099 or RRB-1099-R, depending on the type of payments received. These forms outline taxable and non-taxable portions of benefits.

Employees with multiple railroad employers may receive multiple W-2s, requiring careful consolidation of earnings and tax withholdings. If any reimbursements or employer-provided benefits were received, additional documentation, such as Form 2106 for unreimbursed employee expenses, may be necessary. Keeping records of work-related expenses, per diem allowances, and travel reimbursements ensures all deductions are properly claimed.

Filing Steps

Preparing a tax return as a railroad employee begins with confirming that all income sources are accurately documented, including wages, side earnings, investment income, and taxable benefits. Ensuring these match IRS records helps prevent processing delays or audits.

Once all earnings are accounted for, deductions and tax credits should be evaluated. While standard deductions are available to all taxpayers, those who itemize may benefit from unreimbursed job-related expenses, union dues, and qualified educational costs. Railroad employees who travel frequently should assess whether they qualify for per diem deductions beyond employer reimbursements.

After determining deductions and credits, withholding amounts must be cross-checked. If too little tax was withheld, estimated payments may be necessary to avoid penalties. The IRS imposes underpayment penalties if an individual owes more than $1,000 in taxes and did not pay at least 90% of their total tax liability throughout the year. Adjusting withholding using Form W-4 can help prevent this issue in future filings.

Railroad-Specific Deductions

Railroad employees can claim deductions beyond standard itemized expenses. Union dues and initiation fees are deductible under the Internal Revenue Code when directly related to maintaining employment.

Protective gear and job-required equipment also qualify as deductible expenses when not reimbursed by the employer. This includes high-visibility clothing, steel-toed boots, safety glasses, and industry-specific tools. The IRS requires these items to be necessary for the job and unsuitable for everyday wear. Maintaining receipts and records ensures compliance with IRS requirements.

For those required to travel away from their tax home, unreimbursed lodging costs and meal expenses may be deductible under the “overnight rule.” The IRS allows deductions based on actual expenses or per diem rates established by the General Services Administration (GSA). However, employees must ensure that per diem payments from their employer do not already cover these costs.

Refund or Payment Adjustments

Once a tax return is filed, railroad employees may either receive a refund or owe additional taxes, depending on their withholdings and deductions. The IRS typically processes electronic filings within 21 days, while paper returns can take six weeks or longer. Direct deposit is the fastest way to receive funds, and taxpayers can track their refund status using the IRS “Where’s My Refund?” tool.

If the refund is larger than expected, it may indicate excessive withholdings, which can be adjusted by submitting a new Form W-4. Reducing withholdings allows more take-home pay throughout the year rather than waiting for a lump sum at tax time.

For those who owe taxes, payment options include electronic funds withdrawal, IRS Direct Pay, or setting up an installment agreement. The IRS charges interest and penalties on unpaid amounts, with the failure-to-pay penalty accruing at 0.5% per month up to 25% of the total owed. Railroad employees who frequently owe taxes may benefit from increasing their withholdings or making quarterly estimated payments using Form 1040-ES to avoid future penalties. If an underpayment penalty is assessed, requesting a waiver may be possible if the shortfall resulted from unforeseen circumstances.