Reporting Instructions for Creditable Sickness Payments

Chapter 1: Principles of Creditable Sick Pay

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Reporting Instructions for Creditable Sickness Payments

The Reporting Instructions for Creditable Sickness Payments provides instructions to sickness 

payers on reporting requirements under the Railroad Retirement Act (RRA). Such payers must file 

reports with the Railroad Retirement Board's Compensation and Employer Services Center 

(CESC) within the Office of Policy and Systems. These instructions cover forms and 

correspondence relating to the following subjects:

• annual tax and earnings reports of creditable sick pay;

• adjusted reports of creditable sick pay; and,

• clarification of reports of creditable sick pay in order to correctly credit payee records. 

Creditable Sick Pay Compensation Defined

Creditable Sick Pay compensation is paid to an employee under a plan or agreement available on 

the same basis to employees in a like class and payable for days not worked on account of injury, 

illness, pregnancy, or childbirth. The term "Creditable Sick Pay" refers to an RRB-approved 

Supplemental Sick Pay Plan such that these sickness benefit payments are:

• limited to Tier 1 tax;

• creditable as Tier 1 compensation only;

• not creditable as to yield service months;

• not creditable as Tier II compensation; and,

• not creditable as compensation under the Railroad Unemployment Insurance Act (RUIA).

If you are making sickness payments to your employees through a plan that is not approved by the 

RRB it is creditable as regular compensation and should be reported as Tier I, Tier II and RUIA 

compensation on your annual reports. To have a plan approval determination, submit the plan to: 

Railroad Retirement Board, Chief of RUIA, Internet and Support, 844 N. Rush Street, Chicago Il, 

60611-1275. If you have questions, contact a CESC Specialist.

Exceptions to Creditable Sick Pay Compensation

There are three exceptions where sick pay is not creditable or taxable as Tier 1 compensation. The 

exceptions are: 

• Sick pay paid by the RRB under the Railroad Unemployment Insurance Act for an on-thejob injury; 

• Sick pay paid subsequent to the sixth month following the month the employee last worked; 

and,

• Sick pay is paid in the year after the employee died.

The exception for crediting sick pay after the sixth month following the month the employee last 

work does not mean that creditable sick pay is limited to six months in a year. If the employee 
Reporting Instructions for Creditable Sickness Payments

Chapter 1: Principles of Creditable Sick Pay

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returns to work and is off sick again, a new six month period is counted from the month following 

the latest date worked.

Effects of Creditable Sick Pay Compensation on Retirement Benefit Payments

It is helpful in completing railroad retirement reports to understand the relationships between 

creditable sick pay compensation, employment tax, and benefits under the RRA. Under the RRA, 

creditable compensation and retirement-survivor benefits are all based on a corresponding 

structure of two separate tiers. Railroad retirement taxes under the Railroad Retirement Tax Act 

are also computed using the tier structure. Consequently, a direct relationship exists between 

creditable compensation, the corresponding taxes paid to the Internal Revenue Service (IRS), and 

the benefits paid under the RRA. For creditable sick pay compensation only the Tier I relationship 

applies.

Tier I is the railroad retirement equivalent of social security. Railroad retirement and the social 

security systems are coordinated by law. The Tier I tax is computed on the same percentage rate 

and annual maximum tax base as social security. Like social security tax, Tier I tax is shared 

equally by employee and employer.

The Tier I portion of a railroad retirement annuity is calculated by using the social security benefit 

formula. It is based on an employee's lifetime combined Tier I compensation from creditable sick 

pay compensation, railroad employment earnings, and non-railroad social security credits.