What Is the Tier 1 RRTA Tax for Railroad Workers?
Understand how the Tier 1 RRTA tax serves as the railroad industry's direct equivalent to FICA, funding Social Security and Medicare benefits for workers.
The Railroad Retirement Tax Act (RRTA) is a federal law establishing a retirement benefits system for workers within the railroad industry. This system is funded by payroll taxes that are distinct from the standard Social Security system. A primary component of this structure is the Tier 1 tax, which is functionally equivalent to the Social Security and Medicare taxes paid by other employees and employers under the Federal Insurance Contributions Act (FICA). This tax provides railroad workers with a base level of retirement and disability benefits that mirrors what they would have earned under Social Security.
Tier 1 Tax Components and Rates
The Tier 1 tax is composed of two separate parts that mirror FICA taxes: a Social Security equivalent and a Medicare hospital insurance equivalent. By law, the tax rates for these components are identical to the FICA rates. For 2025, the total Tier 1 tax rate is 7.65% for both the employee and the employer.
The Social Security equivalent portion of the Tier 1 tax is set at a rate of 6.20%. This percentage is paid by the employee on their covered railroad compensation, and the employer pays a matching 6.20%. This component funds retirement and disability annuity benefits calculated similarly to Social Security benefits.
The second part of the Tier 1 tax is for Medicare hospital insurance. The tax rate for this portion is 1.45% for the employee, with the employer also paying a matching 1.45%. These funds are directed toward the Medicare program, ensuring railroad retirees have the same hospital insurance coverage as retirees under the Social Security system.
In addition to the standard 1.45% tax, higher-income earners are subject to an Additional Medicare Tax. This adds a 0.9% tax on earnings that exceed certain annual thresholds, which for 2025 are $200,000 for an individual or $250,000 for a married couple filing a joint return. This additional tax is paid only by the employee. Railroad employers are required to begin withholding the 0.9% tax once an employee’s wages surpass the $200,000 individual threshold.
Annual Wage Base Limit
A significant aspect of the Tier 1 tax is the annual wage base limit, which is the maximum amount of earnings subject to a portion of the tax each year. This limit is directly tied to the Social Security wage base and is adjusted annually. For 2025, the maximum amount of an employee’s earnings subject to the 6.20% Social Security equivalent portion of the Tier 1 tax is $176,100. Once a railroad worker’s year-to-date earnings exceed this threshold, no further Tier 1 Social Security tax is withheld for the remainder of the year.
This wage base limit applies exclusively to the 6.20% Social Security component of the Tier 1 tax. The 1.45% Medicare portion of the tax does not have a wage base limit and is applied to all of an employee’s covered compensation, regardless of how much they earn during the year.
Reporting and Paying Tier 1 Taxes
Railroad employers are responsible for withholding Tier 1 taxes from their employees’ pay and remitting them, along with the employer’s share, to the government. The primary document for this process is Form CT-1, Employer’s Annual Railroad Retirement Tax Return. On this form, the employer reports the total compensation paid to all employees, the total Tier 1 and Tier 2 taxes due, and any adjustments. It serves as an annual reconciliation of the railroad retirement taxes owed for the year.
While Form CT-1 is an annual return, employers must deposit the withheld employee taxes and the employer’s matching contributions throughout the year. The frequency of these deposits—either semi-weekly or monthly—depends on the total amount of tax liability reported during a prior lookback period. These deposits are made electronically through the Electronic Federal Tax Payment System (EFTPS).
For employees, the Tier 1 taxes paid throughout the year are reported on their Form W-2, Wage and Tax Statement. The total Tier 1 tax withheld is often shown in Box 14, labeled as “RRTA Tax,” which provides the necessary information for their personal income tax return.