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10 Taxation Legislation 

10.05 General

Various legislation enacted between1983 and1986 has significantly affected how 

railroad retirement annuities are treated for Federal income tax purposes. Prior 

to this legislation, only the supplemental annuity was taxable under the Internal 

Revenue Code (IRC). Effective with the following legislation, all components of a 

railroad retirement annuity became taxable income under the IRC:

• 1983 Social Security Amendments;

• Railroad Retirement Solvency Act of 1983;

• 1985 Omnibus Budget Reconciliation Act; and

• Tax Reform Act of 1986. 

Revenue raised from these laws is helping to keep the railroad retirement system 

solvent. Proceeds through FY 1992 will be transferred by the Treasury 

Department to the Railroad Retirement Account to be used for benefit payments.

10.10 1983 Social Security Amendments

The 1983 Social Security Amendments required that social security benefits, tier 

1 railroad retirement benefits, and overall minimum (O/M) formula benefits

became taxable under U.S. income tax laws effective January 1, 1984.

10.10.05 Social Security/Tier 1 Threshold Tax

Up to 50% of the tier 1 portion of an annuity and of O/M formula benefits of U.S. 

citizens and residents are subject to taxation based on a "threshold." The 

threshold for a single annuitant is $25,000; the threshold for a married annuitant 

is $32,000; the threshold for a married, filing separately, annuitant is $0. If an 

annuitant's unadjusted gross income plus 50% of the tier 1 and O/M benefits 

received is over the prescribed threshold, then the lesser of 50% of the excess 

over the threshold or 50% of the tier 1 and O/M benefits received must be 

included as taxable income.

A flat 15% of tier 1 and O/M formula benefits must be withheld from nonresident 

aliens. Nonresident aliens are subject to a mandatory 30% withholding of all

taxable benefits (as of January 1, 1984, this included only the tier 2, vested dual 

benefit, and supplemental annuity). Since 85% of the tier 1 and O/M formula 

benefit is taxable, 85% of 30%, or 25.5%, must be withheld by law. The amount 

of tax withholding may be reduced if the beneficiary has claimed an exemption 
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under a tax treaty that is in effect between his or her country of residence and the 

United States.

The taxable tier 1 is the net tier 1 with any workers' compensation (WC) reduction 

added back. This is the tier 1 before SMIB premium deduction, tax withholding, 

partial withholding, or recoveries for overpayment, RUIA, garnishment, or 

assignment offset. This is also the tier 1 after actuarial adjustment, work 

deduction assessment, and annuity waiver.

Any tier 1 and O/M formula benefits due for months prior to December 1983 

(amounts that could have been paid prior to January 1984) are not taxable even 

if the accrued benefits are paid after 1983. For payments due for months after 

November 1983, an annuitant may choose to count a prior year tier 1 or O/M 

accrual to either the year in which it is paid or to the year for which it is due.

EXAMPLE: An unmarried annuitant earned $27,000 in 1984 before retiring 

effective September 1, 1984. He was awarded a partial rate in October 1984. In 

February 1985, his tier 1 annuity was recertified to a final rate; $1,000 of his 

accrual check was attributable to 1984. If he chose to count the $1,000 in 1985, 

his total taxable income would not reach his threshold and he would not have to 

pay tax on the 1984 accrual money. If he chose to count the $1,000 in 1984, it 

would be added to his other income, which exceeds his threshold, and up to 85% 

of the $1,000 (up to $850) would be taxable. By choosing 1985, he avoids 

paying tax on the $1,000.

10.15 Railroad Retirement (RR) Solvency Act of 1983

The taxation provisions of the Railroad Retirement Solvency Act of 1983 also 

became effective on January 1, 1984. This legislation was intended to solve the 

financial problems by allowing the Railroad Retirement Account to borrow against 

the assets of the Financial Interchange on a current basis beginning October 

1983. The RRB would compute the money owed for the past month and the 

Treasury would credit the Account with general revenue funds. At the time of the 

Financial Interchange payment, repayments plus interest would be made to the 

Treasury.

10.15.05 Tier 2/Vested Dual Benefit Tax

The railroad retirement annuity, except for the tier 1 portion, is treated as a 

private pension for tax purposes. The employee contribution portion of the 

benefit is considered to be whatever tier 2 tax he paid starting 10-1-81 plus the 

excess over the FICA tax rate for the period 1-1-37 through 9-30-73. 

Supplemental annuities and the vested dual benefit (windfall) component of a 

railroad retirement annuity are considered as having no employee contributions. 

This means that the RRB is responsible for providing to each annuitant by 

January 31 of each year a statement of the amount of tier 2, vested dual benefit, 
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and supplemental annuities paid through the previous calendar year, plus the 

amount of employee contributions attributable to the benefit type paid that year.

Since these components are being treated like private pensions, they are 

counted as earnings for income tax purposes - there is no threshold for their 

taxability as there is for the tier 1 taxation provision in the Social Security 

Amendments.

As under Civil Service retirement, the annuity does not become taxable until the 

employee has recouped his contributions. In the case of railroad retirement tier 2 

payments, the receipt of this component at any time (even prior to the taxability 

of the component) will serve to offset the employee contributions for determining 

taxability. Although taxable, receipt of the vested dual benefit component does 

not count against the employee's contributions. Taxability of railroad retirement 

annuities coincides with the taxability of tier 1 and social security benefits. All 

benefits paid on or after January 1, 1984, are considered.

10.15.10 Tier 2

The taxable tier 2 is the tier 2 after the employee's contribution has been 

recovered. This is also the tier 2 before tax withholding, SMIB premium 

deduction, RUIA/SUP ANN/SSA recovery, garnishment, or assignment offset. 

This is the tier 2 after actuarial adjustment, waiver, legal process partition, and 

work deduction assessment. The employee's tier 2 contribution (T2C) is the 

amount paid in RRA taxes that exceeds the amount that would have been paid in 

FICA taxes. From 1937 through 1973, the RRA tax exceeded the FICA tax at 

varying rates; from 1974 through September 1981, the tax rates were the same; 

from October 1981 through the current period, the RRA tax exceeds the FICA tax 

by 2%. Tier 2 benefits are, in theory, not taxable until all annuitants drawing on 

an employee's record have together received an amount in tier 2 payments that 

equals the employee's tier 2 contribution.

The tier 2 will be taxed in either of two ways -- the "3 year rule" or the "general 

rule." The 3 year rule allows the annuitant(s) to receive tier 2 benefits tax free 

until the employee's tier 2 contribution has been recovered from tier 2 benefits 

paid IF the contribution can be recovered within a 36-month (or 3-year) period. If 

the T2C cannot be recovered within a 3-year period, the general rule applies. 

However, due to the complexity of the general rule provision and the fact that the 

vast majority of annuitants would be covered under the 3 year rule, an 

administrative decision was made to only tax railroad retirement annuities under 

the 3 year rule. The general rule was not applied until later legislation eliminated 

the 3 year rule (see TOM 10.25).

Another administrative decision deemed all beneficiaries entitled to railroad 

retirement benefits before 1980 to have recovered all employee contributions.
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Tier 2 benefits due for months prior to December 1983 (amounts that could have 

been paid prior to January 1984) are not taxable even if the accrued benefits are 

paid after 1983. For payments due for months after November 1983, a tier 2 

accrual is taxable in the year it is received. The annuitant does not have the 

choice with a tier 2 accrual that he has with a tier 1 accrual in choosing the 

taxable year to which the accrual is counted. 

10.15.15 Vested Dual Benefit Tax

The entire vested dual benefit (VDB) is taxable from the VDB date of entitlement. 

This is the VDB before tax withholding, SMIB premium deduction, RUIA/SUP 

ANN/SSA recovery, or recoveries for overpayments, or garnishment, or 

assignment offset. It is the VDB after actuarial adjustment, work deduction 

assessment, waiver and legal process partition.

VDB benefits due for months prior to December 1983 (amounts that could have 

been paid prior to January 1984) are not taxable even if the accrued benefits are 

paid after 1983. For payments due for months after November 1983, a VDB 

accrual is taxable in the year it is received.

10.20 1985 OMNIBUS Budget Reconciliation Act

Public Law 99-272, entitled the "Consolidated Omnibus Budget Reconciliation 

Act of 1985," became effective January 1, 1986, and affects the taxability of tier 1 

benefits. It qualifies tier 1 as a social security equivalent benefit (SSEB) only 

when entitlement and calculations are consistent with SSA rules. A tier 1 that is 

not an SSEB is taxed like a private or public service pension. Such benefits are 

not subject to the income threshold which limits the taxability of SSA and tier 1 

(SSEB) benefits.

Splitting tier 1 into a social security equivalent benefit (SSEB) portion and a nonsocial security equivalent benefit (NSSEB) portion for tax purposes only is done 

using the Social Security Administration's benefit computation rules.

10.20.05 SSEB

For 1984 and 1985, the Internal Revenue Code treated social security tier 1 

railroad retirement benefits alike in all cases. The taxability of those benefits was 

restricted by an income threshold as explained in TOM 10.10.05.

Under the new law, the amount of tier 1 which would be payable if railroad 

employment had actually been covered under the Social Security Act is known 

as the social security equivalent benefit (SSEB). When entitlement becomes 

consistent with Social Security Act rules (for example, an annuitant has a 

disability freeze, is a full age annuitant, or a 60/30 annuitant attains age 62), the 

SSEB portion of tier 1 will be taxable under the threshold rules; the remainder, if 

any, will be treated like tier 2 for tax purposes.
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The following are a few examples where the tier 1 is all SSEB:

• Annuitants whose type of annuity is full age 65.

• Reduced age employees paid under the 1981 Amendments.

• Annuitants paid under the overall minimum.

• Employees with a disability freeze. 

10.20.10 NSSEB

NSSEB is the portion of the tier 1 amount that is fully or partially taxed like a 

contributory private pension to the extent that the amount exceeds the SSEB. In 

the same manner as with tier 2 benefits these amounts become taxable once the 

employee contributions have been recovered.

When a tier 1 amount does not have an equivalent entitlement under the Social 

Security Act, it is considered that the tier 1 is all NSSEB. The following are a few 

examples where the tier 1 is all NSSEB:

• 60/30 employee annuitants who are under age 62.

• Employee disability annuitants under age 62 without a disability freeze.

• Spouses of employees under age 62 without a disability freeze.

• Any spouse who is under age 62 and does not have a child in care.

• Disabled widow(er)s who are under age 60 and could not be rated disabled 

under Social Security Act rules.

• Parents who are less than age 62.

In these cases, all of tier 1 is taxed without regard to any income threshold, after 

the employee's contributions have been recovered.

Generally, when a railroad retirement tier 1 exceeds the SSEB amount, the 

difference is due to deeming provisions unique to the Railroad Retirement Act. 

Only the portion of tier 1 (NSSEB) that exceeds the SSEB may be taxed like a 

contributory private pension. The following are a few examples where the tier 1 

exceeds the SSEB and, therefore, the annuitant has an SSEB and NSSEB:

• 60/30 annuitants age 62 or over who became eligible before December 1985.

• Employee disability annuitants over age 62 without a disability freeze.
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• Reduced age spouses whose annuities began before 10-81 (the age 

reduction factor was increased on that date).

• Aged widows whose OBD is before age 62.

10.25 Tax Reform Act of 1986

The Tax Reform Act of 1986, Public Law 99-514, was signed into law on October 

22, 1986, and became effective July 2, 1986. This legislation made sweeping 

changes in current tax laws, including amendments to Section 72 of the Internal 

Revenue Code, which deals with the taxation of pension and annuity income. 

Since the tier 2 and the non-social security equivalent benefit (NSSEB) portion of 

the tier 1 of a railroad retirement annuity are treated like a contributory private 

pension under the Internal Revenue Code, this legislation affects how these two 

portions of a railroad retirement annuity are taxed.

Under the new law, the 3-year rule that was used in determining the taxability of 

contributory private pensions was repealed for annuities with beginning dates 

after July 1, 1986. The general rule now applies to these annuities. Under the 3-

year rule, no part of the contributory private pension was taxable until all of the 

employee's contributions were recovered.

10.25.05 General Rule

Under the General Rule, a part of the employee's tier 2/NSSEB is nontaxable 

and the remainder is taxable immediately from the annuity beginning date. The 

nontaxable portion represents a prorated return of investment (the employee's 

contributions). The nontaxable amount is computed based on the amount of the 

employee's contributions and the expected return, which is the total amount of 

annuities expected to be received by the annuitant based on life expectancy 

factors at the annuity beginning date. The taxable portion changes with COL 

increases and other annuity adjustments.

Under the new tax law, for employee annuities with beginning dates between 

July 2 and December 31, 1986, the nontaxable amount remains the same for the 

life of the annuitant. Contribution recovery is not a factor. However, for cases 

with beginning dates after December 31, 1986, although the computation of the 

nontaxable amount remains the same, it is limited to the amount of the 

employee's unrecovered contributions. Once the contributions have been fully 

recovered (the annuitant outlives his or her life expectancy), the entire tier 

2/NSSEB portions of the annuity become fully taxable (this applies to employees 

and survivor beneficiaries). Spouse's entire tier 2/NSSEB portion is fully taxable 

from the spouse's annuity beginning date.
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10.25.10 Simplified General Rule

In the 1988 Internal Revenue Service (IRS) Publication 575, Pension and Annuity 

Income, IRS explains a new method of computing taxable/nontaxable amounts 

for general rule cases. This method is called the simplified general rule.

The introduction of the simplified general rule does not change any of the 

taxation concepts that apply under the general rule. However, the difference 

between the two rules is that the computations of the taxable/nontaxable 

amounts under the simplified general rule are much less complex than those 

under the regular general rule.

General rule beneficiaries (annuity beginning date is after July 1, 1986) may 

choose to use the more simple method of computing their taxable/nontaxable 

NSSEB/tier 2 amounts by applying the simplified general rule only if they are 

employee or survivor beneficiaries entitled for life and under age 75 as of the 

ABD/OBD. Young widow(er)s, minor children, and students who have fixed 

periods of entitlement cannot use the simplified general rule.

10.30 General Agreement on Tariffs and Trade (GATT) Legislation

Section 733 of the Uruguay Round Agreements Act amends Section 871(a)(3) to 

increase the percentage of social security benefits or social security equivalent 

benefit includable in gross income for nonresident aliens from 50 percent to 85 

percent effective in 1995. If any additional revenue is generated from this 

amendment, it would be treated in the same manner as taxes presently withheld 

from nonresident aliens.

This change affects the taxation of social security benefits and the Social 

Security Equivalent Benefit (SSEB) portion of Tier 1 paid to nonresident aliens. 

The increased tax rate is effective for benefits paid after December 31, 1994.

This change does not affect payments to nonresident alien annuitants who live in 

countries which have tax treaties with the United States (U.S.) exempting them 

from SSEB tax withholding and who claim tax treaty exemption. These 

annuitants continue to be exempt from tax withholding.

For example, Israel has an established tax treaty with the U.S. which exempts 

residents of that country from tax withholding when the treaty is claimed.

Effective for payments made after December 31,1996, an annuitant may request 

voluntary withholding with respect to social security equivalent benefits pursuant 

to the amendment to Section 3402(p).
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20 RRA Taxation Guidelines and Principles

20.05 General Information and Terms

The RRA taxation guidelines and principles are the underlying rules that guide 

RRA taxation programs and RRA taxation examiner procedures. They cover the 

structure of the Taxation Accounting System, U.S. citizen and nonresident alien 

tax rule determinations, taxpayer identifying numbers, the employee contribution 

amount, tax accounting, tax withholding, tax deposit, tax refund, and tax 

statement reporting issues. They are not intended for use as a source of basic 

information, but as guidance for those examiners and analysts with an existing 

knowledge of RRA taxation subject matters and who perform RRA taxation 

functions.

The RRA guidelines and principles contained in this section are current as of 

March 10, 2014. Follow them unless advised otherwise by Policy and Systems. 

The directions provided for these rules take precedence over any earlier 

directions that may have differed in substance or approach.

1. The terms “reportable” and “reported” as used in this section refer to amounts 

that are includable or included on RRA tax statements.

2. Unless stated otherwise, references to payments and repayments as used in 

this section refer to positive amounts.

3. Unless stated otherwise, the principles described in this section apply to both 

retirement and survivor annuitants.

4. “TAS” as used in this section refers to the Taxation Accounting System.

5. References to “valid” tax withholding refer to income taxes withheld from one 

or more payments and deposited at the United States Treasury.

6. For Federal income tax purposes, the Internal Revenue Service (IRS) defines 

the “United States” as the 50 states and Washington, D.C.

7. The IRS identifies a “known” individual as someone who has claimed and, as 

needed, provided proof of citizenship and residence for Federal income tax 

purposes. An “unknown” individual is someone who has not claimed, and as 

needed, provided proof of citizenship and residence for Federal income tax 

purposes.

20.10 General Guidelines

The following general guidelines apply to work performed by the Unemployment 

and Programs Support Division ’s Tax, Clerical and Imaging Section-Tax Section 

and Policy and Systems’ Payment Analysis and Systems section..
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1. If a tax statement was correct based on the facts available to the agency at 

the time of statement issue, it remains correct.

2. Do not release original or corrected RRA tax statements or original or 

corrected Forms TXL-120 DF for closed (earlier than the three years prior to 

the current year) tax years unless requested by the annuitant or his or her 

representative payee or by Policy and Systems.

3. For the current year, correct TAS. For a prior year, correct the tax statement, 

unless it's a DF case. For a DF case, see TOM 20.55.4. If an action is 

required by law or regulation, do it. If it's prevented by law or regulation, don't 

do it. Cost and impact should be considered before taking any action that is 

not required.

4. TAS corrections should always be documented.

5. Take responsibility for your work and sign/initial and date what you do.

6. Focus efforts on the issue at hand. Do not redo a case from day one unless 

the issue at hand requires it.

7. If you find an error, take corrective action.

8. When handling requests, meet customers' needs.

20.15 The Taxation Accounting System

The Taxation Accounting System (TAS) consists of annuitant records, 

transactional databases, on-line programs, PC programs, and mainframe 

programs.

Specialized information may be viewed using the General Tax Screens. 

Complete record information may be viewed using the RRBTAS Screens. 

Copies of TAS prints may be requested via TAXTECH. See TOM 3700 for more 

information.

1. Annuitant Records

Annuitant records consist of six tables.

a. The Claim Tax Record (CLMTAXR) - All annuitants or beneficiaries 

associated with a railroad worker’s (employee’s) compensation record are 

associated with the railroad worker’s RRB claim number. The common 

record for all individuals so linked is the CLMTAXR. The CLMTAXR 

contains basic information about the employee.
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b. The Annuitant Tax Record (ANNTAXR) - Each individual annuitant or 

beneficiary linked to the CLMTAXR has an ANNTAXR. The ANNTAXR 

contains basic information about the annuitant or beneficiary.

c. The Overpayment Tax Record (OPTAXR) - This record is currently 

inactive. The OPTAXR is attached to an ANNTAXR and intended to 

provide overpayment information by components and tax years for posting 

repayments to TAS. It was designed in an IDMS database environment to 

occupy space only if overpayment information was updated to the record. 

The basic screen format may be viewed on the General Tax Screens.

d. The Recurring Rate Record (RECURR) - Each annuitant or beneficiary 

who receives recurring annuity payments has RECURRs attached to his 

or her ANNTAXR. RECURR records contain monthly payment 

information by components. RECURRs may also contain annuity 

deductions, repayments, and suspension and termination information.

e. The Nonrecurring Rate Record (NORECURR) - Each annuitant or 

beneficiary who receives one or more nonrecurring annuity payments has 

one or more NORECURRs attached to his or her ANNTAXR. 

NORECURRs contain payment information by components, and may also 

contain annuity deductions, repayments, and correction information.

f. The Statement Tax Record (STATTAXR) - Each annuitant or beneficiary 

to whom we issue one or more annual tax statements has one or more 

STATTAXRs attached to his or her ANNTAXR.

2. Taxation Accounting System Transactional Databases

Transactional databases house information entered through online 

processes. The databases are swept of activity that is subsequently updated 

to TAS. Taxation transactional databases are:

a. RRBTAS - RRBTAS is an online TAS correction facility. It is a real time 

correction process.

b. STAR - STAR is the System To Apply Repayments. This process is used 

to create NORECURRs to capture cash refunds and reclamations that 

need manual posting to TAS.

c. TAXCOR - TAXCOR is the Taxation Correction Facility. It is used to 

modify existing CLMTAXRs, ANNTAXRs, RECURRs, and NORECURRs. 

It is used to create correction RECURRs and NORECURRs.

d. SPOC - SPOC is the SSEB PIA Online Calculation system. It is a 

manually driven system that goes to SEARCH twice a week for SSEB PIA 

information needed for TAS records. This occurs when an SSEB PIA is 
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missing from a record or when an individual is about to attain social 

security equivalent benefit status.

e. W4P - The W-4P transactional database houses edited Forms IRS W-4P 

entered via the online W-4P process. The information is swept from the 

database and updated to TAS, and is the basis for elected tax withholding 

determinations for U.S. citizen pension (NSSEB tier 1, tier 2, VDB, and 

supplemental annuity) payments.

f. W4V - The W-4V transactional database houses edited Forms IRS W-4V 

entered via the online Form IRS W-4V process. The information is swept 

from the database and updated to TAS and is the basis for elected tax 

withholding determinations for U.S. citizen SSEB tier 1 payments.

g. 1001 - The 1001 transactional database houses edited Forms RRB-1001 

information entered via the online Form RRB-1001 process. The 

information is swept from the database and updated to TAS. It is the 

basis for most nonresident citizen and nonresident alien tax rule 

determinations. For nonresident aliens, it is also the source of tax treaty 

exemption claim information.

20.20 United States Citizen and Nonresident Alien Tax Rules

1. Laws pertaining to United States citizenship and residence issues are 

covered by the Immigration and Nationality Act (INA). The Immigration and 

Naturalization Service (INS) used to manage the INA. That responsibility is 

now under the direction of the U.S. Citizenship and Immigration Service 

(USCIS), a bureau under the Department of Homeland Security.

2. For United States income tax purposes, the United States is defined as the 

fifty States and the District of Columbia.

3. For United States income tax purposes, a “known” individual is someone who 

has claimed, and as needed, provided proof of citizenship and residence. An 

“unknown” individual is someone who has not claimed, and as needed, 

provided proof of citizenship and residence.

4. There are two tax rules that affect tax withholding and tax statement 

reporting. An individual is taxed either under United States (U.S.) citizen 

rules or under nonresident alien (NRA) rules.

a. Taxed Under U.S. Citizen Rules

1) A known citizen or bona fide resident of the United States, Guam, or 

the Commonwealth of the Northern Mariana Islands, or

2) A known citizen of Puerto Rico or American Samoa, or
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3) An unknown individual physically residing in the United States or 

Guam or the Commonwealth of the Northern Mariana Islands.

b. Taxed Under NRA Rules

1) An individual who is known to be a citizen of a country other than

the United States, Guam, the Commonwealth of the Northern 

Mariana Islands, Puerto Rico or American Samoa and who is known

to be a bona fide resident for tax purposes of a country other than

the United States, Guam, or the Commonwealth of the Northern 

Mariana Islands, or

2) An unknown individual residing outside the United States and Guam 

and the Commonwealth of the Northern Mariana Islands.

5. Accept a claim of citizenship unless there is reason to question it, such as a 

previous claim that conflicts with a current claim.

6. If an individual claims dual citizenship with the United States and another 

country, establish the United States as the country of citizenship. United 

States citizenship takes precedence over citizenship in a second country. 

After entering U.S. citizenship into TAS, refer dual citizenship claims to the 

Tax, Clerical and Imaging Section-Tax Section for further handling. Also see 

Item 2.a of TOM 210.75.25, Returned Form RRB-1001 - Review for Country 

of Citizenship Claims, Section 3, Item 1.

7. For situations requiring proof of residence, see TOM 210.75.35, Returned 

Form RRB-1001 – When Proof of Residence for Tax Purposes is Required. 

For information about acceptable proofs, see RCM 4.9.10.30.10, Proofs of 

Residence.

8. An alien may establish United States resident alien status in either of two 

ways shown below. The IRS changes these rules from time to time, so 

always refer to the latest version of IRS Publication 519, U.S. Tax Guide for 

Aliens, for the current rules.

a. Lawful Permanent Residence Cards

Lawful Permanent Residence (LPR) Cards, also called Green Cards, 

establish lawful residence in the United States for a 10 year period. For 

additional information about Green Cards, see RCM 4.9.10.30.10, Proofs 

of Residence, item A.1.

b. Substantial Physical Presence Test

An alien may establish lawful resident alien status by passing the IRS’ 

substantial physical presence in the United States test. For additional 
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information about the Substantial Physical Presence Test, see RCM 

4.9.10.30.10, Proofs of Residence, item A.2.

20.25 United States Taxpayer Identifying Numbers (TINs)

1. A United States Taxpayer Identifying Number (U.S. TIN or TIN) is a tax 

processing number used by the United States Internal Revenue Service 

(IRS). The RRB is required by the IRS to have a U.S. TIN for all annuitants 

to whom we issue RRA income tax statements.

2. The three types of U.S. TINs used in connection with reportable RRA 

amounts are Social Security Numbers (SSNs), Individual Taxpayer 

Identification Numbers (ITINs), and Employer Identification Numbers (EINs).

a. Social Security Numbers (SSNs)

SSNs identify individuals. A SSN is a nine digit number formatted as 123-

45-6789. See the Valid SSNs and ITINs graphics document for current 

SSN range information.

b. Individual Taxpayer Identification Numbers (ITINs)

ITINs identify individuals. ITINs are assigned by the Internal Revenue 

Service to individuals who are not eligible to receive SSNs. An ITIN is a 

nine digit number formatted as 901-76-5432. The first digit of valid ITINs 

is a 9. ITIN range verification of 900 series numbers is necessary. See 

the Valid SSNs and ITINs graphics document for current ITIN range 

information.

NOTE:

ITIN range verification is necessary because not all 900 series numbers 

are ITINs. 900 series numbers include Internal Revenue Service 

Numbers (IRSNs). IRSNs cannot be substituted for ITINs. IRSNs are 

temporary numbers issued to individuals for use in processing United 

States income tax returns.

c. Employer Identification Numbers (EINs)

EINs identify business entities, such as estates or administrators of 

estates. An EIN is a nine digit number formatted as 12-3456789.

20.30 Employee Contribution (EEC) Amounts

1. The EEC amount is the difference between payroll taxes paid by an 

employee for payments under the Railroad Retirement Act and the amount of 

payroll taxes an employee would have paid if RR service were covered under 

the Social Security Act.
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2. Before the existence of NSSEB tier 1, the only component an employee 

contributed to was tier 2, and the contribution was called the tier 2 

contribution (T2C) amount. NSSEB and tier 2 are paid from the same RRB 

fund, so with the existence of NSSEB in tax year 1986, an employee 

contributed to both NSSEB and tier 2. The contribution amount is now called 

the employee contribution (EEC) amount, although some references to the 

T2C still exist.

3. NSSEB and tier 2 amounts are referred to as contributory amounts paid 

because the employee contributes to these payments through payroll taxes. 

The amount the employee contributes to NSSEB and tier 2 may be referred 

to by the IRS as a return on a wage earner’s investment, or as a wage 

earner’s cost in his [pension] contract.

4. For EEC recovery purposes, NSSEB and tier 2 payments should be 

considered “periodic payments” received under a “qualified” employee 

pension plan. 

5. The IRS allows some individuals, referred to in this section as “eligible” 

annuitants, to recover a portion of the EEC amount tax free. The nontaxable 

portion of contributory amounts paid represents recovery of the EEC.

6. The RRB provides information regarding the amount of the EEC, and that it 

must be shared by all eligible annuitants receiving contributory amounts paid

on a given railroad account number. The IRS provides information regarding 

the appropriate method of recovery and how to calculate nontaxable 

contributory amounts paid.

7. EEC amounts are provided on some annual RRA tax statements containing 

contributory amounts paid. We do not provide EEC amounts when we know 

the EEC has already been exhausted and is no longer available for use by 

anyone, or because type of annuitant is ineligible to use it. The current tax 

statement form containing contributory amounts paid is Form RRB-1099-R.

8. An EEC amount provided on Form RRB-1099-R is the entire amount 

attributable to a railroad account number. It is not the amount available to 

individual annuitants. When one or more annuitant either is or was eligible to 

use the EEC, the amount still available to be used must be calculated. That 

means determining:

a. The portion of the total EEC amount still potentially available for use, and

b. The portion of the total EEC amount still potentially available for use that 

must be shared by other eligible annuitants currently receiving 

contributory amounts paid.
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9. Disability annuitants under minimum retirement age may not use the EEC 

amount to calculate a nontaxable portion of contributory amounts paid. Their 

contributory amounts paid are fully taxable until they reach minimum 

retirement age. Minimum retirement age is the age an employee could retire 

based on age and service alone, or when an auxiliary beneficiary could retire 

based on age alone.

10. EECs may increase or decrease based on changes reported by the railroads. 

Increases happen regularly in the year after the ABD year when final RR

earnings are reported to the RRB. The tax implications of EEC changes are 

fully retroactive to an annuitant’s ABD. Individuals who have calculated 

nontaxable portions of contributory amounts paid using an EEC that 

subsequently changes must determine if they need to file original or 

corrected Federal income tax returns using the adjusted EEC to determine 

their nontaxable contributory amounts paid.

11. An annuitant’s ABD and age drive the methods available to determine 

nontaxable (tax free) portions of contributory amounts paid. Recovery 

methods have evolved over time. The Three-Year Rule was followed by the 

1986 General Rule, which was followed by the 1987 General Rule. 

Annuitants now need to determine if they should use the General Rule or the 

Simplified Method to determine tax free amounts. 

For additional information about current recovery methods, see 

IRS Publication 575, Pension and Annuity Income, and IRS Publication 939, 

General Rule for Pensions and Annuities.

A divorced spouse or divorced widow receiving a legal process partition 

payment under a court order is not an eligible annuitant. A Qualified 

Domestic Relations Order (QDRO) may state that a divorced spouse or 

widow shall receive a share of the employee’s investment or cost in his 

contract. IRS Publication 575 indicates the same. However, a divorced 

spouse or divorced widow may not receive a share of the EEC because the 

Railroad Retirement Act does not allow for division of the EEC. While a 

court may order division of the EEC, it has no authority to make such an 

order, and the RRB will not comply with it.

20.35 Annuity Payments

The following principles apply to the taxation of annuity payments made under 

the Railroad Retirement Act.

1. A regular annuity (OM formula, tier 1, tier 2, Vested Dual Benefit [VDB]) 

payment effective 12-1-1983 and later is taxable in the year in which paid. A 

taxpayer may choose to consider pre-Social Security Equivalent Benefit 

(SSEB) payments and SSEB payments taxable either in the year in which

they are paid or in the year for which they are paid. Considering pre-SSEB 
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and SSEB payments taxable in the year(s) for which they are paid may lower 

the total taxable income of the year in which they are paid.

2. A supplemental annuity payment effective 11-1-1966 and later is taxable in 

the year in which paid.

3. A tier 1 payment effective for all or part of the period 12-1-1983 through 11-

30-1985 (tax years 1984 and 1985) is reportable as a pre-SSEB amount. A 

tier 1 payment effective 12-1-1985 and later is reportable as a SSEB and/or 

Non-Social Security Equivalent Benefit (NSSEB) amount.

4. Railroad retirement pension (NSSEB tier 1, tier 2, VDB, and supplemental 

annuity) payments are, for Federal income tax purposes, considered 

amounts received under a qualified employee pension plan. 

5. The SSEB/NSSEB allocation of tier 1 payments based on annuity eligibility is 

as follows:

• If SSA would not pay the individual, tier 1 is all NSSEB.

• If SSA would pay the individual and would apply the same age reduction 

rules, tier 1 is all SSEB.

• If SSA would pay the individual but would not apply the same age 

reduction rules, tier 1 is a SSEB/NSSEB split.

6. SSA and RRB apply earnings work deductions differently, and these 

differences sometimes result in tier 1 payments determined to be SSEB 

when SSA would not pay a benefit because of earnings. If the tier 1 being 

paid is only PIA 17 (the net tier 1 payable after offset for work deductions), 

tier 1 is not necessarily all NSSEB. PIA 17 may be all NSSEB, all SSEB, or 

part NSSEB and part SSEB.

• Whenever the SSEB portion of tier 1 is equal to zero, PIA 17 is all 

NSSEB.

• Whenever the NSSEB portion of tier 1 is equal to zero, PIA 17 is all 

SSEB.

• Whenever the SSEB and NSSEB portions of tier 1 are both greater than 

zero and PIA 2 (the amount of tier 1 subject to work deductions) is greater 

than or equal to SSEB, PIA 17 is all NSSEB.

• Whenever the SSEB and NSSEB portions of tier 1 are both greater than 

zero and PIA 2 is less than SSEB, PIA 17 is part SSEB and part NSSEB.

7. SSEB is an entitlement issue, not a payment issue. That means any tax 

statement issued should reflect the amount of SSEB an annuitant was 
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entitled to receive, not to exceed the amount of taxable tier 1 paid, based on 

all information in the agency at the time of statement issue.

8. All individual components of a regular annuity payment are taxable gross of

(before) offset for SMIB premium deduction, legal process garnishment 

deduction, full withholding, partial withholding, tax withholding, recovery of 

debts collected through the Treasury Offset Program, and accrual recoveries 

of RR/SUPP/SS/RUIA overpayments. In addition, SSEB is taxable gross of

(before) offset for any workers compensation amount.

All individual components of a regular annuity payment are taxable net of

(after) offset for actuarial adjustment, annuity waiver, work deduction, and 

legal process partition deduction. In addition, NSSEB is taxable net of (after) 

offset for any workers compensation amount if tier 1 is all NSSEB.

9. A supplemental annuity payment is taxable gross of (before) offset for legal 

process garnishment deduction, full withholding, partial withholding, tax 

withholding, and accrual recoveries of RR/SUPP/SS/RUIA overpayments. A 

supplemental annuity payment is taxable net of (after) offset for annuity 

waiver, work deduction, and legal process partition deduction.

10. Pre-SSEB and SSEB payments are taxed like social security benefits. 

NSSEB and tier 2 payments are taxed as contributory pensions. VDB and 

supplemental annuity payments are taxed as non-contributory pensions. 

11. A payment made to issue the over-reimbursement of an overpayment is not 

taxable. Also see TOM 20.45, Annuity Recoveries – Positive Repayments 

and Negative Payments, principle 6.

12. A courtesy disbursement is considered a nontaxable payment. We do not 

capture courtesy disbursements in TAS. In non-receipt situations, we report 

release of original payments in the years in which they should have been 

received by the annuitants. Also see principle 10 in TOM 20.45, Annuity 

Recoveries – Positive Repayments and Negative Payments.

13. A payment made to reimburse an individual for an overpayment recovery 

amount erroneously withheld from one or more annuity payments is not 

taxable if the reimbursement payment is made in the same year in which the 

erroneous recovery occurred. This is true for SSEB, NSSEB, tier 2, the VDB, 

and the supplemental annuity. Any repayments posted to TAS from the 

erroneous recovery are not reportable on income tax statements. Also see 

TOM 20.45, Annuity Recoveries – Positive Repayments and Negative 

Payments, principle 7.

14. A payment made to reimburse an individual for a prior year overpayment 

recovery erroneously withheld from one or more annuity payments is taxable 

if the reimbursement payment is made in a later year than the one in which 
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the erroneous recovery occurred, and if the erroneous recovery resulted in 

repayments being reported on the tax statement for the year of the recovery, 

and if the tax statement(s) for the year of recovery will not be corrected to 

remove the erroneous repayments. The statement(s) for the year of 

recovery should be corrected unless it is earlier than the earliest open tax 

year for which the RRB will issue corrected tax statements. This is true for 

SSEB, NSSEB, tier 2, the VDB, and the supplemental annuity.

If a Corrected tax statement has or will be issued for the year of the 

erroneous recovery to remove repayments associated with that recovery, 

then a payment made to reimburse an individual for the erroneous recovery 

should not be reported as taxable in the year of the reimbursement. Also see 

TOM 20.45, Annuity Recoveries – Positive Repayments and Negative 

Payments, principle 7.

15. The amount of an annuity due but unpaid at death is taxable to the recipient 

after offset for any deduction amounts attributable to the deceased annuitant. 

Deduction amounts attributable to the deceased annuitant and the payments 

that created them should be established on the deceased annuitant’s tax 

record. These deduction amounts may be monthly or accrual amounts and 

may be taxable or nontaxable amounts.

Examples of accrual amounts are outstanding RRA or RUIA overpayments 

or SMIB premium arrearages. Also see TOM 20.45, Annuity Recoveries – 

Positive Repayments and Negative Payments, principle 9.

16. The RRB’s decision to waive recovery of an overpayment of taxable 

payments does not affect our requirement to report these payments as 

taxable in the year in which they are paid.

17. Effective with tax year 1994, amounts of $600 or more of overpayment 

principal, interest, penalty, and administrative costs that were never reported 

to the IRS as taxable paid amounts, and that are waived, compromised, or 

otherwise deemed permanently uncollectible by the RRB, must be reported

to the IRS as paid amounts in the year waived, compromised, or otherwise 

deemed permanently uncollectible.

18. The RRB excludes reporting of any OM, pre-SSEB, SSEB, NSSEB, tier 2, 

VDB, and supplemental annuity payments made to an annuitant after his or 

her death when we know of the death at the time tax statements are 

originally issued.

19. An annuity rate adjustment is a reportable event in the year in which it occurs. 

An annuity rate adjustment occurs when it is first established in the claim folder 

or on the Imaging system, whether or not it is processed on a vouchered 

award.
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20. All one payment only (OPO) NORECURRs created via STAR or TAXCOR 

must be checked to determine if the individual for which the NORECURR is 

being processed is a nonresident alien (NRA). If so, the NRA’s country of 

legal residence and NRA tax withholding percentages (0% or 15% or 30%) 

must be included in the NORECURR.

The same is true if an existing NORECURR is modified with TAXCOR or 

RRBTAS. All RECURRs and NORECURRs for a given year must contain 

the same country codes and NRA percentages or the automated tax 

statement process will believe there has been a change in this information 

and attempt to create multiple tax statement sets.

20.40 Annuity Deductions

Annuity deductions are allocated to gross component payment amounts to 

determine correct net taxable component payment amounts. Manual allocation 

of annuity deductions to component payment amounts may be necessary if 

dealing with overpayments that were never calculated by components. These 

are sometimes referred to as non-tiered payments and repayments.

1. The Order of Deductions

When multiple annuity deductions apply, they should be applied to 

component payment amounts in a specified order. Component payment 

amounts available for reduction are impacted by any and all deductions 

applied to the component. The order of deductions affects the amount of the 

components payable, and thus reportable to the Internal Revenue Service. 

The order of annuity deductions for RRA taxation purposes is as follows: 

a. Work Deduction Amounts

b. Waiver Amounts

c. Partition Deduction Amounts

d. Garnishment Deduction Amounts

e. Actuarial Adjustment Amounts

f. Partial Withholding Repayment Amounts

g. Tax Withholding Amounts

h. RR SMIB Deduction Amounts 

2. Component Specific and Non-Component Specific Annuity Deductions

Annuity deductions may be component specific or non-component specific. 
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• Component specific deductions should be allocated only to the 

designated components.

• Non-component specific deductions should, with the exception of SMIB 

premium deductions, be prorated over RR formula regular annuity 

components. If the OM formula applies, non-component specific 

deductions should be allocated to SSEB.

3. Allocation of Annuity Deductions to Annuity Components

Below is a listing of annuity deduction amounts and how they should be 

allocated for taxation purposes to component payment amounts. 

Deduction Allocation to Components

Work Deduction Amounts Retirement work deductions are component 

specific. Allocate excess earnings work 

deductions to any tier 1 and vested dual 

benefit, as appropriate. Allocate last person 

employment work deductions to any tier 2 

and supplemental annuity, as appropriate. 

Survivor recurring work deductions are not 

component specific. Prorate survivor 

recurring work deductions over any tier 1, 

tier 2, and vested dual benefit amounts.

For both retirement and survivor records, 

allocate tier 1 work deduction amounts to 

SSEB whenever possible. Allocate tier 1 

work deductions to NSSEB only when tier 1 

work deductions exceed the SSEB portion 

of tier 1. 

Waiver Amounts Waiver amounts may be component specific 

or non-component specific. Use the waiver 

code information in the PREH Reduction 

Record to determine what kind of waiver is 

involved.

If the waiver is component specific, allocate 

the waiver amount to the appropriate 

annuity component(s). A tier 1 waiver 

amount should be prorated between any 
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SSEB and NSSEB. If the waiver is 

unspecified, prorate the waiver amount over 

any SSEB tier 1, NSSEB tier 1, tier 2, and 

vested dual benefit amounts. 

NOTE: 

A waiver code of 5 in a survivor record 

denotes a recurring prorated work deduction 

amount, not a waiver amount. See Work 

Deduction Amounts above for guidance on 

survivor recurring prorated work deductions.

Partition Deduction 

Amounts

Legal process partition deduction amounts 

are component specific. Allocate regular 

annuity partition deduction amounts 

applicable to OM formula payments to preSSEB and SSEB only, as appropriate. 

Allocate regular annuity partition deduction 

amounts applicable to RR formula regular 

annuity payments to any tier 2 and vested 

dual benefit amounts, as appropriate. Tier 1 

payments may not be partitioned.

Allocate supplemental annuity partition 

deduction amounts to the supplemental 

annuity.

Garnishment Deduction 

Amounts

Legal process garnishment deduction 

amounts are not component specific. 

Prorate garnishment deduction amounts 

over any SSEB tier 1, NSSEB tier 1, tier 2, 

and vested dual benefit amounts. 

Actuarial Adjustment 

Amounts

Actuarial adjustment amounts are not 

component specific. Prorate actuarial 

adjustment amounts over any SSEB tier 1, 

NSSEB tier 1, tier 2, and vested dual benefit 

amounts.

Partial Withholding 

Repayment Amounts

Partial withholding repayment amounts are 

component specific. They should be 

allocated according to the composition of 
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the overpayment(s) being recovered. 

Overpayments may occur in single annuity 

components or multiple annuity 

components. They may be fully taxable, 

fully nontaxable, or partially taxable and 

partially nontaxable. Allocate partial 

withholding repayments to the appropriate 

taxable and/or nontaxable repayment fields.

NOTE: Unlike other component specific 

deduction amounts, repayments may be 

allocated to annuity components that are no 

longer payable.

Tax Withholding Amounts Tax withholding amounts are component 

specific. Apply tax withholding amounts to 

the appropriate annuity components.

RR SMIB Deduction

Amounts 

RR SMIB deduction amounts are not 

component specific. Allocate RR SMIB 

deduction amounts to regular annuity 

components in SSEB tier 1, NSSEB tier 1, 

tier 2, and vested dual benefit order, until 

the SMIB is fully allocated. SMIB 

allocations are no longer restricted to single 

annuity components.

NOTE: Unlike other non-component 

specific deduction amounts, RR SMIB 

deduction amounts are not prorated over 

the regular annuity components. We 

allocate SMIB to SSEB first to more closely 

align our SMIB allocation processing with 

SSA’s. 

For an example of allocating multiple deductions to annuity components for RRA 

taxation purposes, see TOM 20 Exhibit 4, The Order of Annuity Deductions and 

How It Affects Taxable Component Payment Amounts.

20.45 Annuity Recoveries – Positive Repayments and Negative Payments

The following principles apply to tax accounting of positive repayments and 

negative payments by the Railroad Retirement Board.
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A positive repayment for tax accounting purposes is the return (check or EFT 

payment) or recovery (full or partial cash refund, installment payment, full or 

partial annuity withholding, recovery from an accrual payment, reclamation, et 

cetera) of an amount previously paid. See principle 2 below for further 

clarification, and see principles 5 and 11 below for exceptions.

A negative payment for tax accounting purposes is the return (check or EFT 

payment) or recovery (full or partial cash refund, installment payment, full or 

partial annuity withholding, recovery from an accrual payment, reclamation, et 

cetera) of an amount previously paid. See principles 5 and 11 for clarification 

and for limitations in the use of negative payment tax accounting.

1. Repayments are reportable for the year(s) in which repayment transactions 

occur at the RRB. “At the RRB” includes headquarters, RRB field offices, 

and RRB lockboxes. When repayments are handled at more than one of 

these facilities, they should be credited as of the earliest receipt date.

2. Pension (NSSEB, tier 2, VDB, and supplemental annuity) repayments are 

reportable only if the amounts repaid were previously reported as taxable 

payments on any annual RRA tax statement(s).

NOTE 1:

A current year repayment is one that occurs in the same year as the payment 

it represents. A current year pension repayment may not be reported on an 

annual tax statement because the above tax principle does not apply. This 

is because the current year pension payment that a current year repayment 

represents was never reported as a taxable paid amount.

To compensate, we net any current year pension repayment accumulated for 

tax statement reporting purposes from any like current year pension payment 

accumulated for tax statement reporting purposes. In these situations, we 

report neither the current year repayment amount nor the corresponding 

current year payment amount.

NOTE 2:

Whenever we exclude reporting of any NSSEB, tier 2, VDB, and 

supplemental annuity payment amounts issued after the death of an 

annuitant (see TOM 20.35, Annuity Payments, principle 18), we should not

report a repayment for recovery of one of these payments.

NOTE 3:

Because we are restricted in reporting pension repayments, in certain 

situations we need to view the contents of the latest original or corrected tax 

statement(s) issued for overpayment periods to determine if overpaid 
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pension amounts were reported as taxable payments. This is particularly 

true when overpayments cover periods for which:

a. We performed employee contribution recovery processing (1984 through 

1991) and the overpaid person’s contributory pension payments were not 

fully taxable during the overpayment period.

b. We did not automatically update one payment only awards to TAS (1984 

through 1992) and the overpaid person’s annuity was adjusted by one or 

more one payment only awards during the overpayment period.

Tax statement information is stored on TAS, through the TAS archive 

process, and on annual tax statement microfilm.

3. Pre-SSEB and SSEB repayments are reportable on annual tax statements 

regardless of whether the amounts repaid were ever reported to the IRS as 

taxable payments. Pre-SSEB repayments are tier 1 repayments for years 

before 1986, including years before 1984.

NOTE 1:

Since SSEB repayments are reportable regardless of whether the amount 

being repaid was ever reported as a taxable payment, current year SSEB 

repayments should be reported as repayments. We should not net current 

year SSEB repayments from current year SSEB payments. We should report 

both the current year repayments and the corresponding current year 

payments.

NOTE 2:

Whenever we exclude reporting any pre-SSEB or SSEB payment amounts 

issued after the death of an annuitant (see TOM 20.35, Annuity Payments, 

principle 17), we do not report a repayment for recovery of one of these 

payments.

4. Recurring repayments (partial withholding or full withholding amounts) not

associated with current year overpayments should be posted to overpaid 

annuity components as “non-id year" amounts. Do not post recurring 

repayments as “other year” amounts. An error in the module that handles 

recurring rate records does not process “other year” amounts correctly when 

partial or full withholding recovery stops.

5. Returned annuity (EFT and paper check) payments issued after the death of 

a beneficiary should be posted to TAS as reversals of the original payment 

record, or as negative payments and negative deductions.

EXCEPTION 1:
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If the original payment record contained negative repayments, these 

amounts are reversed by posting positive repayments.

EXCEPTION 2:

If payments issued after death are returned in a year after death, and if those 

payments were reported on the annuitant’s tax statement(s) for the year of 

death (the payments were not death suppressed), any manually handled 

returned annuity payments should be posted as positive repayments.

NOTE 1:

If payments issued after death are returned in a year after death, and if those 

payments were reported on the annuitant’s tax statement(s) for the year of 

death (the payments were not death suppressed), the year-end programs will 

convert the negative payments associated with the returned payments to 

positive repayments for tax statement reporting purposes.

NOTE 2:

If tax withholding was applied to payments issued after death and if the 

payments are returned in a year after the year of issue, negative payments or 

positive repayments should be posted to TAS net of (after) tax withholding, 

and the tax withholding amounts should not be negated.

6. Over-reimbursements are nontaxable amounts, and should not be reported 

as repayments. See TOM 20.35, Annuity Payments, principle 11.

Overstated positive repayments posted to TAS during periods of full and 

partial withholding represent over-reimbursements. When full and partial 

withholding is removed, we reduce overstated positive repayments by 

posting negative repayments equal to the over-withholding. Over-withholding 

removed in the year an overpayment is actually recovered should result in 

correct repayment totals. Over-withholding removed in a year after the year 

an overpayment is actually recovered will not result in correct repayment 

totals.

When over-withholding is removed in a year after the year an overpayment is 

recovered, it is necessary to adjust reportable totals for the year the full or 

partial withholding is removed, and to issue corrected tax statements for all 

years beginning with the year the overpayment was actually recovered. 

• From the point of overpayment recovery in full withholding situations, 

accumulate neither annuity payments nor repayments for tax statement 

reporting purposes.
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• From the point of overpayment recovery in partial withholding situations, 

reduce annuity payments by the amount of the partial withholding, and 

accumulate no repayments for tax statement reporting purposes.

7. Erroneous overpayment amounts recovered as partial or full withholding or 

accrual withholding from one or more annuity payments, are not reportable 

as repayments. This is different than over-withholding of correctly initiated 

partial or full withholding amounts. See TOM 20.35, Annuity Payments, 

principle 13.

8. Prior to tax year 1994, accrual tax accounting captured accrued payments 

and repayments by annuity component by each individual tax year. Effective 

with tax year 1994, simplified accrual tax accounting captures accrued 

payments and overpayments for the following year combinations:

Pre-SSEB / 

SSEB

NSSEB Tier 2 VDB Supp Ann

Pre-SSEB Pre1984NSSEB 

1986-YR3

Tier 2 Pre1984VDB Pre1984Supp Ann 

Any Year

Pre-SSEB 1984-

1985

NSSEB YR2 Tier 2 Post 

1983

VDB Post 

1983

SSEB 1986-YR3 NSSEB YR1

SSEB YR2 NSSEB CY

SSEB YR1

SSEB CY

Repayments are created from the component underpayment/overpayment 

combinations within prescribed guidelines. See TOM 20.50, Simplified 

Accrual Tax Accounting Effective Tax Year 1994 – Merge and Cross 

Component Recovery Processing, for additional information. For an 

example, see TOM 20 Exhibit 3, Simplified Tax Accounting Effective Tax 

Year 1994 – Merge and Cross Component Recovery Processing.

NOTE 1:

Accrual transactions no longer yield tier 2, VDB, and supplemental annuity 

current year repayments that may be netted from tier 2, VDB, and 

supplemental annuity current year payments for tax statement reporting 

purposes. Accrual transactions still yield current year tier 1 repayments. 
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Therefore, NSSEB repayments may be netted from current year NSSEB 

payments for tax statement reporting purposes. (SSEB is not an issue, as 

current year SSEB repayments are not netted from current year SSEB 

payments.) 

9. Recoveries of certain overpayments are considered nontaxable recoveries. 

Any repayments associated with these recoveries are nontaxable 

repayments, and may not be reported on our annual tax statements. 

Included are tier 1 workers compensation offset overpayments, RUIA 

overpayments, SMIB arrearages, RR tax refund overpayments, SALSA 

overpayments, SS only overpayments, and recovery of amounts originally 

processed as nontaxable paid amounts.

10. If an annuitant cashes both an original and a courtesy disbursement 

payment, we do not post repayment credit for recovery for the resulting 

overpayment. Courtesy disbursement recoveries are not considered 

reportable repayments because courtesy disbursement payments are not 

considered reportable payments. Also see TOM 20.35, Annuity Payments, 

principle 12.

11. We do not have a like pension (NSSEB, tier 2, VDB, and supplemental 

annuity) accrual repayment field for each pension accrual payment field. 

That means we cannot always accurately account for BOTH the year for 

which an amount is repaid and the year in which an amount is repaid. 

Posting certain pension accrual payment recoveries as negative payment 

amounts allows us to properly net them on our annual tax statements.

Pension accrual payments recovered in the year of payment issue by (1) 

return of EFT or paper check annuity payments, (2) cash refunds, or (3) 

cross annuity recoveries involving the same individual should be posted to 

TAS as negative payments, not as repayments. Reverse all payment and 

deduction fields in the returned payment/cash refund/accrual recovery 

NORECURR record as they appear in the original payment NORECURR 

record.

12. Whenever an overpayment occurs in more than one annuity component and 

whenever the amount recovered is less than the entire overpayment, prorate 

repayment allocations. The “streamlined” approach to posting 

overpayment recoveries, a method that involves a component hierarchy to 

allocate repayments, should no longer be used.

An original gross overpayment is defined as after any award accrual merge 

actions within annuity components and before any cross component or other 

accrual recovery actions. Create overpayment component recovery factors 

for taxable and nontaxable annuity components and any un-tiered 

nontaxable amount attributable to the original gross overpayment. Apply the 

overpayment recovery factors to any recoveries that have already occurred, 
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starting with the award accrual cross component recoveries. Apply them to 

other recoveries within the accrual. Continue to apply them to subsequent 

recovery amounts until the overpayment is either fully recovered or until 

another overpayment is established.

NOTE:

• Round overpayment recovery factors to five decimal places.

• Round payment and repayment amounts to two decimal places.

13. When another overpayment is established before an existing overpayment is 

fully recovered, it is necessary to create combined overpayment recovery 

factors. 

Determine the original gross overpayment of the new overpayment. Create 

overpayment component recovery factors for the new overpayment. Apply 

the overpayment recovery factors to any recoveries that have already 

occurred for the new overpayment, starting with any accrual recoveries as 

described in principle 12 above.

Then add the unrecovered taxable and nontaxable balances of the first 

overpayment by annuity components to the unrecovered taxable and 

nontaxable balances of the new overpayment by annuity components

Create combined overpayment recovery factors. Apply the combined 

overpayment recovery factors to any subsequent recoveries until the 

combined overpayments are either fully recovered or until yet another 

overpayment is established.

14. When deduction amounts attributable to a deceased annuitant are recovered 

from an annuity due but unpaid at death, the deductions and the payments 

that created them should be established on the deceased annuitant’s tax 

record. Any taxable amounts are reportable to the deceased annuitant in the 

year of recovery. Also see TOM 20.35, Annuity Payments, principle 15.

15. When processing STAR NORECURRs to enter repayments or repayment 

adjustments for nonresident aliens (NRAs), check to see if there are any 

RECURR records with payment information present in the current tax year. 

If so, enter the NRA country of legal residence and NRA tax withholding 

percentages (0 or 15 or 30) associated with the latest recurring rate records

into the STAR NORECURRs. As applicable, all RECURRs and 

NORECURRs for a given tax year must contain the same country codes and 

NRA percentages or the automated tax statement program will believe there 

has been a change in this information and will create multiple tax statement 

sets. 
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TOM 10 Taxation Legislation, Guidelines and Principles Revised March 20, 2023 Page 29 of 74

If there are no RECURR records with payment information present in the 

current tax year, do not enter the NRA country of legal residence and NRA 

tax withholding percentages in the STAR NORECURRs.

16. Some recoveries should be posted to the Taxation Accounting System (TAS) 

gross of (before) or net of (after) certain deductions. The most common 

determinations involve income tax withholding amounts and Supplementary 

Medical Insurance Benefits (SMIB) premium deductions. Posting recoveries 

gross or net of tax withholding and SMIB depends on the following:

• If recovery is made in the year of payment issue

• If recovery is made in a year after the year of payment issue

• If the reason for recovery is death

• If the reason for recovery is something other than death

For specific information, see TOM 20 Exhibit 5, Posting TAS Recoveries of 

Payments Gross and Net of Tax Withholding and Gross and Net of SMIB.

20.50 Simplified Accrual Tax Accounting Effective Tax Year 1994 – Merge 

and Cross Component Recovery Processing

Prior to tax year 1994, we captured gross component payment and repayment 

amounts for taxable and nontaxable periods. For taxable periods, we accounted 

for each tax year separately. This required the itemization and storage of a 

phenomenal amount of information. It sometimes resulted in tax accounting, tax 

withholding, and tax reporting of amounts that were notably different than 

amounts actually received by annuitants.

Effective with tax year 1994, we’ve applied a simplified approach to accrual tax 

accounting. This approach applies a cash accounting basis to award processing. 

We account for net component payment and repayment amounts by taxable and 

nontaxable periods. For taxable periods, we do not account for each tax year 

separately, but account for them as they must be reported to the Internal 

Revenue Service. Simplified tax accounting requires less itemization and 

storage of data, and more closely reflects agency funds accounting.

The following principles apply to merge and cross component recovery 

processing. Merge and cross component recovery processing applies only to 

accrual award transactions effective with tax year 1994 and later.

1. The merge occurs only within a component.

2. Cross component recovery occurs only across or between components.
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3. Accrual accounting captures underpayments and overpayments. We create 

repayments from a combination of underpayments and overpayments.

4. Pre-1984 repayments may be merged with post 1983 payments.

5. Pre-1984 payments may not be merged with post 1983 repayments.

6. If a component's underpayments are greater than or equal to the amount of 

that component's overpayments, then the amount of that component's 

repayments is equal to the amount of that component's overpayments. (If 

PDs are > or = OPs, then REPDs = OPs.)

7. If a component's underpayments are less than the amount of that 

component's overpayments, then the amount of that component's repayments 

is equal to the amount of that component's payments. (If PDs are < OPs, 

then REPDs = PDs.)

8. Positive workers compensation offset amounts attributable to the SSEB 

portions of tier 1 are taxed as SSEB payments. Within an accrual award 

transaction, positive and negative workers compensation offset amounts 

attributed to SSEB may first be merged with other positive and negative 

workers compensation offset amounts attributable to SSEB, and may then be 

merged with SSEB overpayments and underpayments.

9. The hierarchy of cross component overpayment recovery within a new 

accrual payment is shown below. This hierarchy is applied after the merge of 

overpayments and underpayments within components. It is applied when an 

overpayment within the new accrual is not fully recovered. It does not apply 

to accrual recoveries of previously established overpayments. 

First

a. Any NSSEB from tier 2 and/or any tier 2 from NSSEB

Then

b. Pre-1984 Tier 2

c. Pre-1984 VDB

d. Pre-1984 Tier 1

e. Post 1983 Tier 2

f. Post 1983 VDB

g. 1984-1985 Tier 1
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TOM 10 Taxation Legislation, Guidelines and Principles Revised March 20, 2023 Page 31 of 74

h. 1986-YR3 NSSEB

i. 1986-YR3 SSEB

j. YR2 NSSEB

k. YR2 SSEB

l. YR1 NSSEB

m. YR1 SSEB

n. CY NSSEB

o. CY SSEB

NOTE 1:

The supplemental annuity is not listed above. The supplemental annuity may 

be considered only if there is an award activity transfer of funds from either 

the RR account to the SUPP account or from the SUPP account to the RR 

account, and then only for the amount transferred.

NOTE 2:

This hierarchy was designed to recover older overpayments first in 

contributory pension, non-contributory pension, and SSEB order. Recovering 

them in this particular component order allows us to report what are probably 

more advantageous repayments ahead of less advantageous repayments.

See TOM 20 Exhibit 3, Simplified Tax Accounting Effective Tax Year 1994 – 

Merge and Cross Component Recovery Processing, for examples of the 

application and restrictions in applying this processing.

20.55 Retroactive Decisions that Affect Annuity Component Entitlement

The following principles apply to retroactive decisions that have a tax impact.

1. A period of disability (DF) granted or terminated retroactively within the year 

of the DF onset decision date or DF termination decision date should be 

considered in any tax statement released for the year of the DF onset or DF 

termination decision date.

2. A period of disability (DF) onset granted or terminated December 1, 1992 or 

later that retroacts into a year prior to the year of the DF onset decision date

or DF termination decision date is not a basis for release of corrected annual 

tax statements for any prior tax year now covered by the DF onset or DF 
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termination decision date. This is true even if corrected tax statements are 

requested by the beneficiary. 

3. A DF onset or DF termination granted December 1, 1992 or later that 

retroacts into a year prior to the year of the DF onset decision date or DF 

termination decision date may be the basis for release of Forms TXL-120 DF 

that re-characterizes the composition of the tier 1 considering the DF onset 

or DF termination date. The letter may be used by the annuitant as the basis 

for amending his or her Federal income tax returns for any affected years.

EXCEPTION:

Whenever a DF onset was granted or terminated December 1, 1992 or later, 

but (1) the DF information updated to TAS was erroneous, or (2) the DF 

information was updated to TAS in a year after the year of the DF onset 

decision date or DF termination decision date, corrected tax statements 

should be issued, as appropriate, for the year of the DF onset or termination 

decision date and later. Original or corrected Forms TXL-120 DF should be 

issued, as appropriate, for years covered by the DF onset or DF termination 

that retroact earlier than the year of the DF onset decision date or DF 

termination decision date. 

These corrected tax statements and original or corrected Forms TXL-120 DF 

should make tax statement reporting and Form TXL-120 DF information 

consistent with what would have been reported or released if the DF 

information had been updated to TAS both correctly and timely.

4. A period of disability (DF) onset granted or terminated prior to December 1,

1992 is basis for release of corrected annual tax statements for any years 

covered by the DF onset or termination decision. However, because years 

before 1992 are not open tax years with the IRS, we would not initiate 

release of corrected tax statements for these years.

5. When the RRB and SSA both grant a disability freeze and the DF onset 

dates are different, use the RRB DF onset date for tax accounting purposes.

6. Periods of disability (DFs) were granted on the basis of drug and alcohol 

abuse (DAA) to individuals who filed disability applications prior to January 1, 

2008. Individuals who file disability applications on or after January 1, 2008

may be rated disabled, but will not be granted DFs based on DAA. Tier 1 

amounts paid to these individuals prior to retirement age will be taxed as 

NSSEB. 

7. Annuity formula conversion accruals are reportable by component in the year 

of the conversion. OM to RR, RR to OM, and age OM to DIB OM 

conversions that retroact into a year prior to the year of the conversion 

transaction is not a basis for release of corrected annual tax statements for 
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any prior tax year now covered by the annuity formula conversion. Any 

retroactive period effective for a year prior to the year of the conversion is 

part of the accrual associated with the conversion transaction, and should be 

considered in the tax statement issued for the year of the conversion 

transaction.

a. RR to OM Conversions

Only RR formula SSEB previous payments may be merged with OM 

formula SSEB accrued payments, thereby reducing the reportable OM 

formula SSEB accrual payment. RR formula NSSEB, tier 2, and VDB 

previous payments recovered from OM formula SSEB accrued payments 

are reportable as NSSEB, tier 2, and VDB repayments in the year of the 

annuity formula conversion. 

b. OM to RR Conversions

Only OM formula SSEB previous payments may be merged with RR 

formula SSEB accrued payments, thereby reducing the reportable SSEB 

RR formula accrual payment. OM formula SSEB previous payments 

recovered from RR formula NSSEB, tier 2, and VDB accrued payments 

are reportable as SSEB repayments in the year of the annuity formula 

conversion. 

c. RR to DIB OM Conversions or age OM to DIB OM Conversions

These may warrant release of Forms TXL-120 DF for prior tax years under 

principle 2, above. However, a Form TXL-120 DF will not cover rates 

payable under the DIB OM. It will cover tier 1 rate(s) payable under the 

RR formula or rate(s) payable under the age OM formula (whatever was 

actually paid) in the prior year now covered by the DF.

8. Effective with any tax statements prepared January 1, 2002 and later, 

reportable payments and repayments associated with periods covered by 

RRA annuity application cancellations are reported for the year in which they 

occur. This applies to tax statements prepared for any tax year, including 

years before 2002. We no longer suppress current year reporting of these 

amounts, nor do we issue prior year corrected statements to zero out these 

amounts.

9. Whenever we reallocate component payment amounts, we may need to 

reallocate component deduction amounts associated with the original 

payment amounts. See TOM 20.75, Reallocation of Annuity Payments and 

Deductions, for additional information.
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TOM 10 Taxation Legislation, Guidelines and Principles Revised March 20, 2023 Page 34 of 74

10. When periods of disability (DF) are granted or terminated and tier 1 

overpayments exist in the records and tier 1 repayments are involved, the 

DF information may or may not affect how tier 1 repayments are reported.

a. The DF Onset or Termination Effective Date is Equal to or Earlier than

the Tier 1 Overpayment Effective Date, and the DF Onset or Termination 

Continues Throughout the Entire Tier 1 Overpayment Period. 

1) Special Forms TXL-120 DF Used When Tier 1 Repayments are 

Involved 

Tier 1 repayments may be re-characterized on Forms TXL-120 DF 

considering the DF onset or DF termination date.

2) Tier 1 Repayments Posted to TAS and Reported on Tax Statements

Tier 1 repayments may not be re-characterized on TAS to consider 

the DF onset or DF termination date. We must continue to capture 

and report tier 1 repayments as we reported the overpaid tier 1 

payments. We do not know who does or does not amend prior year 

tax returns to consider the DF information.

b. The DF Onset or Termination Effective Date is Later Than the Entire Tier 

1 Overpayment Period. 

1) Special Forms TXL-120 DF Used When Tier 1 Repayments are 

Involved 

Tier 1 repayments may not be re-characterized on Forms TXL-120 

DF considering the DF onset or DF termination date. The tier 1 

overpayment period is not impacted by the DF.

2) Tier 1 Repayments Posted to TAS and Reported on Tax Statements

Tier 1 repayments may not be re-characterized on TAS to consider 

the DF onset or DF termination date. The tier 1 overpayment period 

is not impacted by the DF.

c. The DF Onset or Termination Effective Date is in the Middle of the Tier 1 

Overpayment Period. 

1) Special Forms TXL-120 DF Used When Tier 1 Repayments are 

Involved 

Cases are to be referred to PAS for instructions. 

2) Tier 1 Repayments Posted to TAS and Reported on Tax Statements
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TOM 10 Taxation Legislation, Guidelines and Principles Revised March 20, 2023 Page 35 of 74

Cases are to be referred to PAS for instructions.

20.60 Federal Income Tax Withholding

The following principles apply to tax withholding forms and tax withholding 

amounts associated with RRA annuity payments.

1. Federal income taxes are calculated and withheld from both recurring and 

nonrecurring Social Security Equivalent Benefit (SSEB), Non-Social Security 

Equivalent Benefit (NSSEB), tier 2, Vested Dual Benefit (VDB), and 

supplemental annuity payments.

2. When annuity payments are determined to be not due, amounts overpaid 

include any income taxes withheld from payments in any year prior to the 

annuity suspension or termination accounting date year.

3. RRA due process rules do not apply to Federal income tax withholding. 

Annuitants are not entitled to a 30 day advance notice of Federal income tax 

withholding increases that will decrease net annuity rates. Incorrect tax 

withholding rates should be corrected as soon as possible.

4. Tax withholding election certificates used for individuals taxed as U.S. 

citizens are:

a. Forms IRS W-4P, Withholding Certificate for Periodic Pension or Annuity 

Payments, are used by individuals taxed under U.S. citizen rules to elect 

tax withholding or elect no tax withholding from NSSEB, tier 2, VDB, and 

supplemental annuity payments.

b. Forms IRS W-4V, Voluntary Withholding Request, are used by 

individuals taxed under U.S. citizen rules to elect tax withholding or elect 

no tax withholding from SSEB payments.

c. Forms RRB-1001, Nonresident Questionnaire, are used by nonresident 

individuals to identify their country of citizenship and their country of 

residence for tax purposes. Information provided on this form allows us 

to determine if U.S. citizen rules apply to individuals.

5. Tax withholding election certificates used for individuals taxed as nonresident 

aliens are:

a. Forms RRB-1001, Nonresident Questionnaire, are used by nonresident 

individuals to identify their country of citizenship, their country of legal 

residence for tax purposes, and to claim exemption from full tax 

withholding under any applicable income tax treaty in effect between 

their country of residence for tax purposes and the United States. 

Information provided on this form allows us to determine if NRA rules 

apply to individuals. 
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TOM 10 Taxation Legislation, Guidelines and Principles Revised March 20, 2023 Page 36 of 74

b. Forms RRB-1001, Nonresident Questionnaire, are used by nonresident 

alien individuals to renew tax treaty exemption claims. These claims 

provide reduced income tax withholding under income tax treaties in 

effect between their country of residence for tax purposes and the United 

States. Renewals are effective until December 31 of the third year 

following the year a properly completed renewal form is processed at an 

RRB office.

6. RRB personnel may not pre-complete any information, including the RRB 

claim number, or the United States Taxpayer Identifying Number for auxiliary 

applicants/annuitants, and the Signature item for any applicant/annuitant on 

tax withholding certificate Forms IRS W-4P, Forms RRB-1001, and Forms 

IRS W-4V before providing them to applicants/annuitants. .

7. RRB personnel may not alter ANY items on Forms IRS W-4P, Forms RRB1001, and Forms IRS W-4V after they are received from 

applicants/annuitants.

8. We may not accept a “NO” tax withholding election on Form IRS W-4P if:

a. the individual’s United States taxpayer identifying number is not provided 

on the form, or

b. the individual resides outside the 50 United States, Washington D.C., 

Guam, and the Commonwealth of the Northern Mariana Islands.

9. We may not accept a “YES” tax treaty exemption claim on Form RRB-1001 if:

a. the individual’s United States taxpayer identifying number is not provided 

on the form, or

b. the individual’s country of residence for tax purposes is not provided on 

the form. 

10. Tax treaty exemption claims affect future payments only. Original and 

renewal tax treaty exemption claims are not retroactive.

11. We apply income tax withholding using withholding election forms/ 

certificates and, in the absence of these certificates, we apply mandatory 

U.S. citizen and mandatory NRA tax withholding as required by the Internal 

Revenue Code.

12. We calculate and withhold taxes from daily payment award activities and the 

annual cost of living mass adjustment. We have a monthly TAS Recert 

program that selects annuitants on the basis of newly filed U.S. citizen and 

NRA withholding certificates, attainment of retirement age under the SSA, 

grants or terminations of periods of disability, receipt of new SSEB PIAs, and 

manually requested selections.
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13. In a given tax year, if we under-withheld income taxes from a NRA annuitant, 

and if we corrected the recurring tax withholding rate to apply 30 percent tax 

withholding, and if we secured a properly completed Form RRB-1001 with a 

tax treaty exemption claim, we should delay entry of the Form RRB-1001 into 

TAS. The IRS requires we recover any under-withheld NRA taxes in the 

year of the under-withholding. Delaying entry of the tax treaty exemption 

claim may, depending on the timing, allow over-withholding to occur so we 

can recover all or part of the under-withholding for the agency’s trust funds. 

Such recovery actions may not carry over into the next tax year.

20.65 Federal Income Tax Deposits and Tax Deposit Adjustments

1. Tax withholding amounts are deposited at the U.S. Treasury for the Internal 

Revenue Service (IRS) on behalf of our annuitants.

2. Tax deposit information is tracked internally at the RRB by U.S. Citizen and 

Nonresident Alien Accounts, and by Regular Annuity and Supplemental 

Annuity Accounts.

3. The source of RRB Federal income tax deposit money is: 

a. Monthly Check Issue, covering tax withholding from recurring annuity 

payments.

b. Post period OPOs, which are also Monthly Check Issue payments, 

covering tax withholding from recurring annuity payments.

c. The TAS daily update program, DELTA, for:

1) Tax withholding from nonrecurring annuity payments (excluding the 

post period OPOs cited above), and

2) Tax withholding adjustments associated with returned recurring and 

nonrecurring annuity payments.

d. The TAS correction process TAXCOR, covering tax withholding 

adjustment amounts associated with Federal income tax withholding 

refunds.

e. STAR, a TAS process covering tax withholding adjustments associated 

with cash refund repayments.

4. TAS fields that impact tax deposits are positive and negative tax withholding 

amounts by annuity components, positive and negative tax refund amounts 

by annuity components, and tax deposit codes that identify the tax deposit 

account (U.S. citizen or NRA) affected.
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5. Tax deposit credits increase tax deposits. Tax deposit debits decrease tax 

deposits.

6. Whether tax withholding amounts or tax refund amounts are positive or 

negative determines whether the adjustments credit or debit the agency’s tax 

deposits.

Positive and Negative Tax Withholding 

and Tax Refund Amounts Effect on Tax Deposit Totals

Positive (+) Tax Withholding Amounts Credit (Increase)

Negative (-)Tax Withholding Amounts Debit (Decrease)

Positive (+)Tax Refund Amounts Debit (Decrease)

Negative (-)Tax Refund Amounts Credit (Increase)

7. When tax withholding is refunded during a tax year, the agency’s tax 

deposits are adjusted for the refund. This is done by processing a TAXCOR 

correction NORECURR showing positive tax withholding refund amounts by 

annuity components and identifying the tax deposit account from which the 

taxes were originally withheld. 

8. When mandatory or elected U.S. citizen taxes are withheld from a NRA tax 

refund, the agency’s tax deposits must not only be adjusted for the NRA tax 

refund, they must also be adjusted for the amount of taxes being withheld as 

U.S. citizen taxes. Two TAXCOR correction NORECURRs must be 

processed on different days to adjust the agency’s tax deposits before the 

close of the tax year.

a. One TAXCOR NORECURR should be processed with positive (+) tax 

refund amounts entered by annuity components, and identifying the NRA 

tax deposit account. The positive tax refund amounts will credit 

(decrease) the NRA tax deposit account.

b. A second TAXCOR NORECURR should be processed on a different day 

with positive (+) tax withholding amounts entered by annuity 

components, and identifying the U.S. citizen tax deposit account. The 

positive tax withholding amounts will debit (increase) the U.S. citizen 

account.

9. The RRB files annual income tax returns to report Federal income taxes 

withheld and deposited with the U.S. Treasury. Policy and Systems, PAS, 

files the following:
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a. IRS Form 945, Annual Return of Withheld Federal Income Tax, to report 

U.S. citizen tax withholding and deposits.

b. IRS Form 1042, Annual Withholding Tax Return for U.S. Source Income of 

Foreign Persons, to report NRA tax withholding and deposits.

20.70 Federal Income Tax Refunds

1. Refunds of current year NRA taxes withheld because of RRB errors should 

be made whether or not they are requested by the annuitant.

2. Refunds of current year assumed NRA taxes withheld from U.S. citizens may 

be made if requested by the annuitant, but may not exceed the appropriate 

mandatory and/or elected U.S. citizen taxes applicable to the annuity 

payments from which the NRA taxes were withheld.

3. When NRA income tax refunds are issued to either U.S. citizens or NRAs, 

bypass automated tax statement processing for the year of the tax refund. 

The automated annual statement process cannot at this time create accurate 

tax statements involving NRA tax refunds.

4. Refunds of current year U.S. citizen taxes may be made only if one of the 

following is true:

a. The annuitant requests a refund and a RRB error was involved, or

b. The annuitant requests a refund and dire need is involved, or

c. The annuitant requests a refund and mandatory (not elected) NSSEB 

taxes were withheld from an annuity and a period of disability (DF) is 

awarded in the current year and the tier 1 payments from which we 

withheld the NSSEB taxes will be reported on our tax statements as SSEB 

payments. 

5. We restrict processing U.S. citizen tax refunds because of the extra work 

doing so puts on TCIS-TS. It’s reasonable to assume U.S. citizens with tax 

withholding will file income tax returns. They can secure any over-withheld 

income taxes from the IRS by filing returns. The three exception situations 

cited in principle 4 above allow us to pay tax refunds to U.S. citizens in 

situations in which doing so would clearly provide good customer service.

6. When income tax refunds are made to annuitants, the agency’s tax deposits 

must be adjusted for the refund. A TAXCOR correction NORECURR must be 

created before the close of the tax year showing positive (+) tax refund 

amounts by annuity components, and identifying the tax deposit account 

(U.S. citizen or NRA) into which the taxes were deposited when originally

withheld. Positive tax refund amounts debit, or decrease, the tax deposit 

account identified on the TAXCOR NORECURR.
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TOM 10 Taxation Legislation, Guidelines and Principles Revised March 20, 2023 Page 40 of 74

EXCEPTION 1:

A TAXCOR correction NORECURR should not be created to adjust the 

agency’s tax deposits if an income tax refund is made after the close of the 

tax year.

7. In limited situations, income tax refunds may be made after the close of the 

tax year. TCIS-TS may initiate these refunds, but Policy and Systems, PAS 

must approve them. Such refunds will only be approved if all four of the 

following conditions are true:

a. A RRA income tax statement showing the over-withheld income tax will 

not be issued to the annuitant, and

b. The RRB’s income tax return covering the agency’s tax deposits for the 

tax year just closed has not been filed with the IRS, and

c. A manual tax deposit adjustment will be made by P&S, PAS to the 

RRB’s income tax return totals covering the income tax refund paid after 

the close of the tax year, and

d. Manual tax statement(s) will be issued with the income tax refund 

considered as having been paid in the year for which the statement(s) 

are issued.

20.75 Reallocation of Annuity Payments and Deductions

1. Component payment amounts are reallocated for a number of reasons – 

Social Security Equivalent Benefit (SSEB) attainments, regular annuity 

Railroad (RR) or Overall Minimum (OM) formula conversions, period of 

disability (DF) grants and terminations, findings that annuitants are 

incarcerated felons or otherwise not entitled to receive social security 

benefits for reasons identified in the Social Security Act, discovery of 

computation errors, et cetera. Whenever component payment amounts are 

reallocated, component deduction amounts may also need to be reallocated. 

Deductions that should be evaluated are:

a. Work Deduction Amounts

b. Waiver Amounts

c. Partition Deduction Amounts

d. Actuarial Adjustment Amounts

e. Partial Withholding or Full Withholding or Accrual Withheld Recovery 

Amounts or Cash Refund Amounts
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f. Tax Withholding Amounts

2. P&S PAS may have set current year tier 1 reallocations for felons and other 

individuals not entitled to receive SSA benefits. Do not take immediate tier 1 

reallocation action on a record if any one of the following TAS conditions 

exists: 

 Retirement Records With EE SSEB Insured Status Codes of 2 in TAS and 

Employee SSA Insured Status Codes of 1 in PREH.

OR

 Retirement and Survivor Records With ANNTAXR Bypass Codes of 009.

OR

 Retirement and Survivor Records With ANNTAXR OPO Bene Codes of 

001.

a. Incarcerated Felons and Others on the Felon’s Wage Record

Check the latest list of known felons to see if the record is listed and the 

felon is still incarcerated. If so, and if the employee is the felon, do not 

modify the TAS tier 1 settings. Maintain NSSEB for the felon, but not for

his or her auxiliary annuitants/ beneficiaries, unless NSSEB applies 

without regard to the employee’s felon status. Auxiliary annuitants are to 

be treated as they would if the employee were not an incarcerated felon.

If the felon is not the employee, do not modify the TAS tier 1 settings. 

Maintain NSSEB for the felon, but not for other annuitants/ beneficiaries 

drawing on the wage record.

b. Deportees From the United States and Others on the Deportee’s 

Wage Record

Check the latest list of individuals deported from the United States. If the 

deported individual is the employee, if TAS tier 1 settings are for NSSEB, 

do not modify the TAS tier 1 settings. Maintain NSSEB for the deportee 

and for any auxiliary annuitants/beneficiaries. Auxiliary annuitants are to 

be treated for tax purposes in the same manner as the deported

employee/ wage earner.

If the deported individual is not the employee, do not modify the TAS tier 1 

settings. Maintain NSSEB for the deported individual, but not for other 

annuitants/ beneficiaries drawing on the wage record.

c. Other Individuals Not Payable at SSA
TOM 10

TOM 10 Taxation Legislation, Guidelines and Principles Revised March 20, 2023 Page 42 of 74

Do not remove the TAS tier 1 settings. P&S PAS should provide handling 

instructions for any affected employee, spouse, divorced spouse, survivor, 

parent, or partition or garnishment payee. Instructions should include:

1) Directions for individuals not entitled to SSA benefits or those now 

re-entitled to SSA benefits, and

2) Directions for any other beneficiaries receiving benefits on the wage 

record.

3. Follow the general Order of Deductions rules in TOM 20.40, Annuity 

Deductions, when reallocating deduction amounts. Also see

TOM 20 Exhibit 4, The Order of Deductions and How It Affects Taxable 

Component Payment Amounts, for an example.

4. Reallocate component specific deductions if the component payments with 

which they were associated are being reallocated. These are work deduction 

amounts, some waiver amounts depending on the waiver code involved, and 

legal process partition deduction amounts.

5. Re-prorate non-component specific deductions over reallocated regular 

annuity component payment amounts. These are some waiver amounts, 

depending on the waiver code involved, and actuarial adjustment amounts.

6. Repayments should always be allocated to overpaid annuity components as 

those overpaid payment amounts were reported to the IRS. If original and

corrected tax statements were released for the overpayment period, use the 

overpaid payments as shown on the latest tax statements we released.

EXCEPTION: 

Pre-1984 tier 1 repayments may be reported as pre-SSEB repayments even 

though pre-1984 tier 1 payments were not reported to the IRS as taxable 

amounts.

7. If an overpayment being recovered is confined to the current tax year and the 

payments have never been reported to the IRS, treat recovered amounts as 

follows:

a. Current Year RECURR Record Amounts

• Allocate positive current year repayment amounts to recover current 

year RECURR record payment amounts.

• Allocate negative deduction amounts to reverse positive deduction

amounts posted to the original recurring rate record.

b. Current Year NORECURR Record Amounts
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TOM 10 Taxation Legislation, Guidelines and Principles Revised March 20, 2023 Page 43 of 74

• Allocate negative payment amounts by designated tax years to 

recover current year NORECURR record payment amounts. These 

include both returned payment NORECURRs and recovered accrual 

payment NORECURRs. See TOM 20.45, Annuity Recoveries – 

Positive Repayments and Negative Payments, for more information 

about negative payments.

• Allocate negative deduction amounts to reverse positive deduction 

amounts posted to the original NORECURR record.

• Allocate positive deduction amounts to reverse negative deduction 

amounts posted to the original NORECURR record. A common 

example of this would be negative repayment amounts posted in 

original accrual after overpayment recovery NORECURRs. Reverse 

a negative repayment posting by processing a positive repayment 

posting. 

8. If all or part of an overpayment being recovered was paid in a prior tax year 

and reported to the IRS, and if those payments will not be changed on 

corrected prior year tax statements, then repayment amounts should reflect 

the overpaid payment amounts as reported to the IRS. If that’s the case and 

current year component payment amounts are being reallocated, do not

reallocate repayment amounts to conform to the reallocated payment 

amounts.

For Example: 

NSSEB tier 1 was overpaid in a prior tax year and is currently being 

recovered by partial withholding. Current year tier 1 payments will be 

reallocated to SSEB, but corrected prior year tax statements will not be 

issued. Reallocate current year tier 1 payments to SSEB, but do not 

reallocate current year tier 1 partial withholding repayments to SSEB. Tier 1 

repayments should be allocated to NSSEB because the prior year tier 1 

payments being recovered are and will remain reported as NSSEB.

NOTE 1: 

We don’t know if annuitants use TXL-120 DF letters to file amended Federal 

income tax returns. Always assess repayments to component payments as 

we last reported those payments to the IRS. Use STATTAXRs to determine 

how we last reported the payments. Never presume the annuitant filed 

amended tax returns. 

9. For U.S. citizen rule annuitants, we report each component separately to the 

IRS. Each component should be evaluated separately when determining 

whether tax withholding should be reallocated.
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TOM 10 Taxation Legislation, Guidelines and Principles Revised March 20, 2023 Page 44 of 74

a. When to Reallocate U.S. Citizen Tax Withholding

If tax withholding for any component reported to the IRS is greater than 

zero, and if that component’s net taxable paid amount for the tax 

statement period is equal to zero, tax withholding needs to be

reallocated.

A component’s net taxable paid amount is the amount that will be 

reported on RRA tax statements and is often less than a component’s 

gross paid amount. Follow the order of deductions cited in TOM 20.40, 

Annuity Deductions, to determine a component’s net taxable paid 

amount.

b. When Not to Reallocate U.S. Citizen Tax Withholding

Do not reallocate a component’s tax withholding if it exceeds the 

component’s net taxable paid amount in that RECURR or NORECURR 

so long as the component’s net taxable paid will be greater than zero on 

the annual tax statement.

c. Never

1) Reallocate excess regular annuity tax withholding to the 

supplemental annuity.

2) Reallocate excess supplemental annuity tax withholding to the 

regular annuity.

3) Reallocate excess regular annuity pension (NSSEB, tier 2, VDB) tax 

withholding to SSEB unless the regular annuity is SSEB only or the 

OM formula applies.

d. Always

1) Reallocate any NSSEB to tier 2 first, if available.

2) Reallocate any tier 2 to NSSEB first, if available.

NSSEB and tier 2 are both paid from the Railroad Retirement (RR) 

Account, so reallocations should be made between these two 

components whenever possible.

e. Modify U.S. Citizen Tax Withholding in TAS

When tax withholding is reallocated during a tax year, and only U.S. 

citizen tax withholding is involved, TAS tax withholding fields need to be 

adjusted so the tax statements are correct. Process a TAXCOR 

correction NORECURR showing negative tax withholding amounts and 
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TOM 10 Taxation Legislation, Guidelines and Principles Revised March 20, 2023 Page 45 of 74

positive tax withholding amounts reflecting the reallocations, and 

equaling the total of taxes actually withheld. The adjustment should 

include the tax deposit account from which the taxes were originally 

withheld. 

f. Both U.S. Citizen Rule and NRA Rule Taxes are Involved in the Same 

Record

Do not combine U.S. citizen rule tax adjustments and NRA rule tax 

adjustments on the same TAXCOR correction NORECURR. Process 

them on separate TAXCOR correction NORECURRs that will be updated 

to TAS on different days.

g. Tax Deposits

When U.S. citizen regular annuity tax withholding is reallocated during a 

tax year, the agency’s tax deposits do not need to be adjusted for the 

reallocation.

20.80 Who Should Receive RRA Income Tax Statements

The following principles apply to determinations of who should receive tax 

statements for reportable payments and repayments issued by the Railroad 

Retirement Board.

1. Tax statements should be issued to the person who received the payments, 

or to his or her RRB recognized representative payee. Tax statements 

should be issued to the person who made the repayments, or to his or her 

RRB recognized representative payee.

EXCEPTION 1: 

OM assignment payments should be attributed to the employee, not to the 

payee.

EXCEPTION 2: 

Legal process garnishment payments should be attributed to the person 

whose annuity was garnished, not to the payee.

EXCEPTION 3: 

Payments associated with misappropriation of funds may or may not have 

been reported as paid to the person who negotiated the payments. Do not 

correct tax statements solely for the purpose of reporting payments as 

received by another individual who was found to have misappropriated an 

annuitant’s funds.
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TOM 10 Taxation Legislation, Guidelines and Principles Revised March 20, 2023 Page 46 of 74

2. Repayments associated with misappropriation of funds should be attributed to 

the person to whom we reported the taxable payments, even if that person is 

not the one who made the repayments.

3. Repayments associated with a beneficiary overpayment that is repaid by a 

check written off a joint checking account belonging to the overpaid annuitant 

or beneficiary and one or more other individuals should be attributed to the 

overpaid annuitant or beneficiary. This is true even if the person who signed 

the check is not the overpaid annuitant or beneficiary. 

4. Reportable repayment amounts involving returned check or EFT payments 

should be associated with the tax record/annuitant associated with the 

original payment record.

5. Payment and repayment amounts attributable to an individual who died 

should be addressed to the deceased annuitant, with or without the notation, 

"Deceased" after his or her name.

6. Tax statements representing accrued annuity payments made to the executor 

of an estate or the administrator of an estate or representing repayments 

made by the executor of an estate or the administrator of an estate should be 

issued "For the Estate of" the deceased annuitant, and should contain the 

estate’s taxpayer identifying number. This would be an Employer Identifying 

Number (EIN).

20.85 Content and Rules About RRA Income Tax Statements

1. Various tax statement forms have been used over the years to report taxable 

RRA payments. For more information about these forms, see 

TOM 20 Exhibit 2, History of Tax Statement Forms Used to Report Federally 

Taxable RRA Payments and Repayments.

2. By law, RRA tax statement forms must be issued (postmarked) to U.S. 

citizen recipients of federally taxable income no later than January 31 of the 

year following the tax year being reported. RRA tax statement forms must be 

issued (postmarked) to NRA recipients of federally taxable income no later 

than March 15 of the year following the tax year being reported.

3. By law, RRA tax statement forms must include the following United States 

Taxpayer Identifying Numbers: 

a. The RRB’s Employer Identification Number (EIN). 

b. If the payee is an individual, the individual’s Social Security Number (SSN) 

or Individual Taxpayer Identification Number (ITIN).

c. If the payee is an estate or the administrator of an estate, the estate’s EIN.
TOM 10

TOM 10 Taxation Legislation, Guidelines and Principles Revised March 20, 2023 Page 47 of 74

4. Always bypass automated tax statement processing whenever:

a. A NRA income tax refund is issued to either a U.S. citizen or a NRA.

b. A tax withholding issue has not been resolved and will not be properly 

reflected in TAS by tax statement cutoff for the current tax year.

5. If original tax statement forms contain one or more errors in fact, we issue 

corrected tax statement forms for any tax years the IRS considers open that 

are affected by the error(s). Open years are those for which the IRS will still 

accept original or amended tax returns. Prior to April 15th of any given tax 

year, these are the four most recent prior tax years. After April 14th of any 

given tax year, these are the three most recent prior tax years.

6. If replacements of available original or corrected tax statement forms are 

requested, we issue duplicate forms.

7. Effective with any tax statements prepared January 1, 2002 and later, 

reportable payments, repayments, and tax withholding amounts associated 

with periods covered by RRA annuity application cancellations are reported

for the year in which they occur. This applies to tax statements prepared for 

any tax year, including years before 2002. We no longer suppress current 

year reporting of these amounts, nor do we issue prior year corrected 

statements to zero out these amounts.

8. NRAs or assumed NRAs whose TAS records reflect a change in country 

code or a change in NRA tax withholding percentages will receive more than 

one set of original NRA tax statement forms for that tax year.

9. Individuals who are initially taxed under U.S. citizen rules and later under 

NRA or assumed NRA rules in a given tax year will receive more than one 

set of original tax statement forms. This situation usually involves an 

individual residing in the United States who later moves outside the United 

States without providing us with citizenship and country of legal residence for 

tax purposes information.

10. Individuals who are initially taxed under assumed NRA rules and later under 

U.S. citizen rules will receive more than one set of original tax statement 

forms unless their TAS records are modified. This situation usually involves 

individuals residing outside the United States who have not provided us with 

citizenship and country of legal residence for tax purposes information.

Once we establish individuals are entitled to U.S. citizen rules and would 

have been entitled to them for the entire tax year, we should determine if a 

single set of U.S. citizen rule tax statements can be issued. If a refund of 

NRA taxes has not been issued, we can modify TAS to remove NRA 

information and replace it with U.S. citizen information. In these instances, 
TOM 10

TOM 10 Taxation Legislation, Guidelines and Principles Revised March 20, 2023 Page 48 of 74

we can issue a single set of U.S. citizen rule tax statements. If this is not the 

case, we should bypass automated tax statement processing.

11. IRS Form 1099-C is used to report cancellation of debt of amounts of $600 or 

more, including overpayment principal, interest, penalty, and administrative 

costs. These cancellation of debt amounts are associated with payments 

that were never reported to the IRS as taxable paid amounts and that are 

waived, compromised, or otherwise deemed permanently uncollectible by the 

RRB. IRS Form 1099-C is issued for the tax year in which the debt is 

waived, compromised, or otherwise deemed permanently uncollectible.

12. We issue TXL-120 DF letters covering the potential re-characterization of 

prior year tier 1 amounts due to retroactive period of disability (DF) grants. 

We don’t know whether or not an individual files amended income tax returns 

for those years. Therefore, always base any corrected tax statement totals 

for payments issued before the year of the DF onset decision date without

consideration of the DF. For tax statement reporting purposes, the DF 

does not exist prior to the year of the DF onset decision date.

EXCEPTION 1: 

If we issued corrected tax statements that included consideration of the DF 

for any year prior to the year of the DF onset decision date, any additional 

corrected tax statements (Corrected Correcteds) for those tax years should

consider the DF.

13. Form RRB-1099 is issued to individuals taxed as U.S. citizens and covers

reportable SSEB amounts in the tax statement period. Any 1984-1985 preSSEB amounts are identified as SSEB amounts. For a given tax year or 

portion of a given tax year, it contains:

a. Gross SSEB payments issued or credited as issued in the tax statement 

period. Amounts not issued because of full withholding or partial 

withholding for overpayment recovery are amounts credited as issued.

b. SSEB repayments reported, as applicable, for recovery of any post 1985 

SSEB repayment, any 1984-1985 pre-SSEB repayment, and any pre1984 tier 1 repayment in the tax statement period. Pre-1984 tier 1 

repayments represent payment amounts never reported to the IRS as 

taxable.

c. SSEB net payments for the tax statement period, which equal the gross 

SSEB payments less any SSEB repayments. If net payments are 

negative, they are shown in parenthesis ( ).

d. SSEB payments issued in the tax statement period that were paid for the 

first prior tax year.
TOM 10

TOM 10 Taxation Legislation, Guidelines and Principles Revised March 20, 2023 Page 49 of 74

e. SSEB payments issued in the tax statement period that were paid for the 

second prior tax year.

f. SSEB payments issued in the tax statement period that were paid for 

years before the second prior tax year.

g. SSEB federal income taxes withheld in the tax statement period.

h. Workers’ compensation deduction amounts that are included in the gross 

SSEB payment amount for the tax statement period.

i. Any SMIB premium (Part B and/or C, and/or D) deductions made from 

RRA annuity payments issued for the tax statement period.

14. Form RRB-1042S is issued to individuals taxed as NRAs and covers 

reportable SSEB amounts in the tax statement period. Any 1984-1985 preSSEB amounts are identified as SSEB amounts. For a given tax year or 

portion of a given tax year, it contains:

a. Gross SSEB payments issued or credited as issued in the tax statement 

period. Amounts not issued because of full withholding or partial 

withholding for overpayment recovery are amounts credited as issued.

b. SSEB repayments, as applicable, for recovery of any post 1985 SSEB 

repayment, any 1984-1985 pre-SSEB repayment, and any pre-1984 tier 

1 repayment in the tax statement period. Pre-1984 tier 1 repayments 

represent payment amounts never reported to the IRS as taxable.

c. Net SSEB payments in the tax statement period, which equal the gross 

SSEB payments less any SSEB repayments. If net payments are

negative, they are shown in parenthesis ( ).

d. SSEB payments issued in the tax statement period that were paid for the 

first prior tax year.

e. SSEB payments issued in the tax statement period that were paid for the 

second prior tax year.

f. SSEB payments issued in the tax statement period that were paid for 

years before the second prior tax year.

g. SSEB Federal income taxes withheld in the tax statement period.

h. Workers’ compensation deduction amounts that are included in the gross 

SSEB payment amount in the tax statement period.

i. Any SMIB premium deductions (Part B and/or C and/or D) made from 

RRA annuity payments in the tax statement period.
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j. The country of residence for tax purposes for the tax statement period.

k. The NRA tax withholding percentages applicable to the tax statement 

period. These may or may not be the tax withholding percentages actually 

applied to the tax statement period.

If correct NRA tax withholding did not occur and action was not taken to 

correct tax withholding for the period in question, the NRA tax withholding 

percentages should reflect the percentages that should have been 

applied, not the percentages that were applied. Tax withholding amounts 

actually withheld or credited as withheld should be shown on the 

statement. In these instances, the IRS has information necessary to 

determine that taxes were either over-withheld or under-withheld, and any 

follow-up is between the IRS and the annuitant.

15. Form RRB-1099-R is issued to individuals taxed as U.S. citizens or NRAs 

and covers reportable pension amounts in the tax statement period. For a 

given tax year or portion of a given tax year, it contains:

a. Any applicable Employee Contribution (EEC) amount.

b. The contributory amount (NSSEB and tier 2) paid in the tax statement 

period.

c. The vested dual benefit paid in the tax statement period.

d. The supplemental annuity paid in the tax statement period.

e. The total gross pension paid in the tax statement period.

f. Pension repayments in the tax statement period. Pension repayments 

may be reported only if the payments recovered were previously 

reported as taxable. Current year repayments are netted from current 

year payments by posting them as current year positive repayments or 

as current year negative payments. Current year accrual recoveries 

should be posted as negative payments in the tax year in which they 

were originally paid. Negating accrual amounts includes posting 

negative deduction amounts.

EXCEPTION:

If an accrual contained any negative repayments, those amounts are 

reversed by posting them as positive repayments.

g. Pension tax withholding in the tax statement period.
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h. SMIB premium deductions (Part B and/or C and/or D) made from RRA 

annuity payments in the tax statement period if a Form RRB-1099 or 

Form RRB-1042S is not being issued for that same period.

i. For a NRA or assumed NRA, the country of residence for tax purposes 

for the tax statement period.

j. The NRA tax withholding percentages applicable to the tax statement 

period. These may or may not be the tax withholding percentages 

actually applied to the tax statement period.

If correct NRA tax withholding did not occur and action was not taken to 

correct tax withholding for the period in question, the NRA tax 

withholding percentages should reflect the percentages that should 

have been applied, not the percentages that were applied. Tax 

withholding amounts actually withheld or credited as withheld should be 

shown on the statement. In these instances, the IRS has information 

necessary to determine that taxes were either over-withheld or underwithheld, and any follow-up is between the IRS and the annuitant.

16. The RRB provides the IRS with RRA tax statement information.

a. Automated original U.S. citizen 1099 SSEB information is transmitted 

Using Connect:Direct over an encrypted Virtual Private Network (VPN) 

tunnel. This information is due by March 31 of the year following the tax 

statement year.

b. Automated original NRA 1042S SSEB information and U.S. citizen and

NRA 1099-R pension information by NSSEB, tier 2, VDB, and 

supplemental annuity components is transmitted via the Filing 

Information Returns Electronically (FIRE) system. This information is 

due by March 31 of the year following the tax statement year.

NRA Negative 1042S transmissions contain any net negative SSEB 

payments. NRA Negative 1099-R transmissions contain any net 

negative pension payments.

c. Supplemental U.S. citizen SSEB information from manual original and 

corrected tax statements that was not included with the automated 

original information is transmitted using Connect:Direct. This information 

is due by August 1 of the year following the tax statement year.

d. Supplemental NRA 1042S SSEB and U.S. citizen and NRA 1099-R tax 

statement information from manual original and corrected tax statements 

that was not included with the automated original information is 

transmitted using the FIRE system. This information is due by August 1 

of the year following the tax statement year.
TOM 10

TOM 10 Taxation Legislation, Guidelines and Principles Revised March 20, 2023 Page 52 of 74

e. IRS Form 1096, Annual Summary and Transmittal of U.S. Information 

Returns, used to report the total amount of permanently cancelled debt 

reported on IRS Forms 1099-C is due by February 28 of the year 

following the tax statement year.

17. Archived RRA tax statement information is retained for various business 

needs. Those business needs and ease of access to the information should 

be considered before archiving tax statement information.

a. Repayment Reporting on Current and Open Year RRA Tax Statements

Pension repayments are only reportable on RRA tax statements if they 

represent recovery of payment amounts previously reported to the IRS as 

taxable. Over the years, we have varied reporting of pension payment 

amounts for a number of reasons including: 1) employee contribution 

recovery processing, 2) award processing constraints, 3) TAS update 

constraints involving one payment only awards, comp only awards, DF 

onset grant retroactivity, et cetera.

The only way to know what pension payment amounts we reported as 

taxable is to view the tax statement information itself. Many overpayments 

being recovered in current and open tax years actually occurred years 

ago. We must have access to tax statement information in order to 

properly report repayment information on current and open year tax 

statements. 

b. Bureau of the Actuary Recurring Financial Interchange Project

The Financial Interchange section in the Bureau of the Actuary is 

responsible for evaluating the SSEB portion of RRB debt that is waived, 

compromised, or otherwise deemed permanently uncollectible by the 

RRB. Program Accounts Receivable System information is used in 

tandem with RRA tax statement information to determine the SSEB 

portion of these debts. The study results affect the amount of the ongoing 

credit to the RRB’s Social Security Equivalent Benefit (SSEB) account for 

these debts. Access to tax statement information for the years being 

reviewed is vital to conducting the studies.

c. Internal Revenue Service Retention Requirements

The IRS requires retention of tax statement information for at least four 

years after the due date for filing income tax returns on any tax statement 

information issued by the RRB. Since the due date for filing tax returns on 

most RRA tax statement information is April 15 of the year following the 

year of tax statement issue, the minimum retention period is generally 

considered to be five years after the year of tax statement issue. 

18. Current Availability of Archived Tax Statement Information
TOM 10

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a. Tax Years Prior to 1984 – Supplemental Annuity Only

Tax statement information is available on microfilm in TCIS-TS for some 

years before 1984. The tapes are titled SAMIC and the tax years are 

designated. Supplemental annuities were reported on Forms G-1099 

prior to 1984.

b. Tax Years 1984 Through 1988

Tax statement information is available on microfilm in TCIS-TS for tax 

years 1984 through 1988. There was a supplemental run of automated 

1988 statements. If 1988 tax statement information is not found on the 

regular reels, check the reel marked “1988 Tax Statements Part 2”.

c. Tax Year 1989

Tax statement information for tax year 1989, previously available through 

an archived tax statement retrieval process, was allowed to lapse. It isn’t 

available on any medium.

d. Tax Years 1990 Through 2005

Tax statement information (TAS STATTAXRs) for tax years 1990 

through 2005 was archived in 2013. We do not have a retrieval process 

in place to easily access copies of these records.

20.90 Adjusted Income Tax Withholding, Adjusted Income Tax Deposits, 

and Corrected RRA Tax Statements

1. You may credit a tax refund received net of tax withholding as if it were 

received gross of tax withholding in the year just closed only if the following 

two conditions exist:

a. Automated tax statement processing was either manually bypassed or 

bypassed by the year-end process, and a tax statement for the year in 

question has not been issued, and

b. The RRB’s annual tax deposit returns have not been filed for the year just 

closed. 

NOTE 1:

If crediting a recovery received for a closed tax year gross of tax 

withholding rather than net of tax withholding, prepare manual tax 

statements containing affected payment amounts gross of tax withholding 

and decrease reportable tax withholding by the amount of the tax 

withholding credit. Do not process a TAXCOR NORECURR to adjust 

TAS or the agency’s tax deposits because the affected tax year is closed. 

Take this action only in collaboration with P&S PAS.
TOM 10

TOM 10 Taxation Legislation, Guidelines and Principles Revised March 20, 2023 Page 54 of 74

2. A corrected tax statement may show a decrease in tax withholding only if

the tax withholding amount shown on the original tax statement or on a 

previously issued corrected tax statement does not represent taxes actually 

withheld from one or more payments and deposited with the U.S. Treasury in 

the tax year in question.

3. If we included tax withholding on a tax statement and the taxes were actually 

withheld from one or more payments and deposited with the U.S. Treasury,

any corrected tax statement issued MUST contain that tax withholding 

amount. When a tax withholding amount is reported on a corrected tax 

statement, the tax statement MUST also contain the payment that 

sustained the tax withholding (the payment from which the taxes were 

withheld). This is true even if we received a cash refund or other recovery 

amount that wasn’t considered on the original or a previously corrected tax 

statement. A corrected tax statement or a “corrected corrected” tax 

statement is, however, needed to report repayments and/or reduce payments 

associated with the unapplied cash refund or other recovery amount.

20.95 How RRB Trust Funds Are Impacted by the Taxation of RRA 

Annuities

RRB trust funds receive money from the U.S. Treasury due to Federal income 

taxation of RRA annuities.

1. Each year, the U.S. Treasury sends money to RRB trust funds based on

initial projections of Federal income taxes that will be owed the IRS on 

railroad retirement annuity income for the current tax year. Treasury sends 

money in quarterly installments to the:

a. Social Security Equivalent Benefit (SSEB) Account for SSEB tier 1. 

b. Railroad Retirement (RR) Account for NSSEB tier 1 and tier 2. 

c. Dual Benefit Payments (DBP) Account for vested dual benefits. 

NOTE:

Supplemental annuities have always been taxable under Federal income tax 

laws. Federal income taxes paid on supplemental annuities do not generate 

income for the RRB trust funds. That money stays in Treasury’s General 

Fund.

2. Adjustments, or reconciliations, occur after the close of the tax year. For 

these adjustments, Treasury distinguishes between:

a. Federal income taxes owed on railroad retirement annuity income paid 

to those individuals taxed as U.S. citizens. Information is obtained from 

income tax returns filed with the IRS for prior tax years.
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b. Federal income taxes withheld from railroad retirement annuity income 

paid to those individuals taxed as nonresident alien (NRAs). Tax 

withholding information is obtained from RRB Original tax statement 

tapes sent to the IRS in February for the previous tax year and from RRB 

Corrected tax statement tapes sent to the IRS in August for the previous 

and other prior tax years.

NOTE:

Funds sent to the SSEB account for NRA SSEB tax withholding serve as 

credits for the Social Security Administration (SSA), decreasing money 

SSA owes the RRB as part of Financial Interchange transfers.

20.100 Laws and Rulings Affecting RRA Taxation Processing

The Internal Revenue Code, the Federal Tax Regulations, national legislation 

(Public Laws), IRS directives, LAW legal opinions, LAW advice memoranda, and 

management policy decisions explain how, why, and when RRA taxation 

processing evolved. 

Federal tax provisions are not subject to review or waiver under the Railroad 

Retirement Act (RRA) because they are provisions of the Internal Revenue Code 

and Federal Tax Regulations, not the RRA. Legal opinions are secured when 

Public Laws affect RRA payments and the changes, in turn, impact RRA taxation 

processing.

For specific information, see TOM 20 Exhibit 1, History of Laws and Rulings 

Affecting RRA Taxation Processing. Income tax withholding tables usually 

change every tax year, and are not identified on the chart unless they result from 

legislation implemented after the beginning of a tax year.

TOM 20 Exhibit 1, History of Laws and Rulings Affecting RRA 

Taxation Processing

The following chart contains laws and rulings that have had significant impacts 

on RRA taxation processing. It does not, nor is it intended to, reflect all directives 

on this subject.

Laws and 

Rulings

Effective Date Components 

Affected

Impact on RRA 

Payments/Repayments

/Reporting
TOM 10

TOM 10 Taxation Legislation, Guidelines and Principles Revised March 20, 2023 Page 56 of 74

Public Law 

89-699

Payments 

Issued 

November 1, 

1966 and Later

Supplemental 

Annuities

Supplemental annuity 

payments are subject to 

Federal income tax.

Public Law 

98-21, the 

Social Security 

Amendments 

of 1983

Payments 

Issued January 

1, 1984 and 

Later

Tier 1 and 

Overall 

Minimum 

Formula

Benefits

Up to 50% of tier 1 and 

OM benefits are taxable 

in the same manner as 

social security benefit 

payments. 

Public Law 

98-76, the 

Railroad 

Retirement 

Solvency Act of 

1983

Payments 

Issued January 

1, 1984 and 

Later

Tier 2, Vested 

Dual Benefits, 

and 

Supplemental 

Annuities

Tier 2 benefits are 

taxable as periodic 

contributory private 

pension payments. The 

employee’s contribution 

to tier 2 is referred to as 

the tier 2 contribution 

(T2C) amount. The 

RRB performs T2C 

recovery processing 

under the Three Year 

Rule to determine 

taxable and nontaxable 

tier 2 benefits.

Vested Dual Benefit 

payments and 

Supplemental Annuities 

are taxable as periodic 

non-contributory private 

pension payments.

Public Law 

99-272, the 

Consolidated 

Omnibus 

Budget 

Reconciliation 

Act of 1985 

(COBRA)

Payments 

Issued January 

1, 1986 and 

Later

SSEB and 

NSSEB Tier 1

Only the amount of tier 1 

that SSA would pay in 

benefits is taxable as a 

Social Security 

Equivalent Benefit 

(SSEB) amount. The 

amount of tier 1 greater 

than the SSEB is the 

Non-Social Security 

Equivalent Benefit 

(NSSEB) amount, and is 

taxable as a contributory

private pension. 
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TOM 10 Taxation Legislation, Guidelines and Principles Revised March 20, 2023 Page 57 of 74

Since NSSEB and tier 2 

benefits are paid from 

the same account, the 

employee contributes to 

NSSEB as well as tier 2 

benefits. The T2C 

amount becomes the 

employee contribution or 

EEC amount. The RRB 

performs EEC recovery 

processing under the 

Three Year Rule to 

determine taxable and 

nontaxable NSSEB and 

tier 2 benefits.

Public Law 

99-514, the 

Tax Reform Act 

of 1986

Annuity 

Beginning 

Dates July 2, 

1986 and Later

NSSEB Tier 1

and Tier 2

Employee contribution 

recovery under the 

Three Year Rule is 

repealed. EEC recovery 

processing falls under 

the 1986 General Rule

or the 1987 General 

Rule.

The 1986 General Rule 

applies to ABDs July 2, 

1986 through December 

31, 1986. Nontaxable 

NSSEB and/or tier 2 

amounts are calculated 

for the life of the annuity.

The 1987 General Rule 

applies to ABDs January 

1, 1987 and later. 

Nontaxable NSSEB 

and/or tier 2 amounts 

are calculated based on 

expected returns. Once 

the EEC has been 

recovered through 

receipt of nontaxable 

NSSEB and/or tier 2 

amounts, contributory 
TOM 10

TOM 10 Taxation Legislation, Guidelines and Principles Revised March 20, 2023 Page 58 of 74

amounts paid become 

fully taxable.

Director of 

Taxation Policy 

Decision

Late 1980’s 

and Later 

SSEB Tier 1 

and OM 

formula 

Benefits, 

NSSEB Tier 1, 

Tier 2, VDB, 

and 

Supplemental 

Annuities

Unless a DF is granted 

in the year of an annuity 

formula conversion (RR 

to OM or OM to RR), 

corrected prior year tax 

statements should not 

be issued in response to 

a formula conversion 

that retroacts into prior 

tax years. Annuity 

conversion payments 

and repayments are 

reportable in the year of 

the conversion.

Director of 

Taxation Policy 

Decision

Tax years 1991 

and Later 

SSEB Tier 1 

and OM 

formula 

Benefits, 

NSSEB Tier 1, 

Tier 2, VDB, 

and 

Supplemental 

Annuities

Once the agency knows 

of an annuitant’s death, 

tax statements for that 

year will not include 

payments issued after 

death, or the recovery of 

payments issued after 

death.

If we learn of an 

annuitant’s death in a 

year after it occurs, tax 

statements for the 

termination year will not 

include payments issued 

after death or the 

recovery of those 

amounts. They may 

include recovery of 

payments issued after 

death in any year before 

the termination year, as 

those amounts were 

reported to the IRS as 

taxable.

July 29, 1991 

Legal Opinion 

91-101, 

Tax Years 

1992 and Later

NSSEB Tier 1 

and Tier 2

When the Three Year 

Rule was repealed by 

the Tax Reform Act of 
TOM 10

TOM 10 Taxation Legislation, Guidelines and Principles Revised March 20, 2023 Page 59 of 74

Reporting 

Employee 

Contribution 

and Recovery 

Amounts.

1986, we were no longer 

required to determine 

nontaxable and taxable 

contributory amounts 

paid.

We are required to 

report (1) the EEC less 

any contributions 

recovered under the 

Three Year Rule, and (2) 

the total NSSEB and tier 

2 amounts paid.

Effective with tax year 

1992, the RRB stopped 

performing EEC 

recovery, and stopped 

determining nontaxable 

contributory amounts 

paid.

June 19, 1991 

Legal Opinion 

L-91-84, Tax 

Reporting of 

Retroactive 

Payments and 

Adjustments, 

and September 

13, 1991 

follow-up L-91-

84.1.

This is a three 

member 

Board 

approved 

policy change

covering the 

general area of 

tax reporting of 

retroactive 

adjustments.

Tax years 1993 

and Later

SSEB tier 1 

and Overall 

Minimum 

Formula 

Benefits

NSSEB tier 1

The RRB will no longer 

issue corrected tax 

statements because of a 

retroactive period of 

disability (DF).

Beginning with DFs 

granted December 1, 

1992 and later, changes 

to TAS and tax 

statements only affect 

the year of the DF onset 

decision date. 

Retroactive DFs may be 

the basis for release of 

Forms DF TXL-120 or 

TXL-120DF that recharacterize the 

composition of the tier 1 

for prior years and may 

be used to amend 

Federal income tax 

returns.
TOM 10

TOM 10 Taxation Legislation, Guidelines and Principles Revised March 20, 2023 Page 60 of 74

July 1, 1993 

General 

Counsel 

Memorandum, 

1994 Changes 

to Our Tax 

Accounting 

Practices 

Accrual 

Payments 

Vouchered 

January 1, 

1994 and Later

Pre-1984 Tier 

1, 1984 and 

1985 preSSEB Tier 1, 

and SSEB 

Tier 1

NSSEB Tier 1

Pre-1984 and 

Post 1983 Tier 

2 

Pre-1984 and 

Post 1983 

VDB

Supplemental 

Annuity

Simplified Accrual Tax 

Accounting applies a 

cash accounting basis to 

accrual processing. We 

account for net 

component payment and 

repayment amounts by 

taxable and nontaxable 

periods.

The RRB accomplishes 

this through a process 

called Merge and Cross 

Component Recovery 

processing, and by 

following a hierarchy of 

recovery of accrual 

overpayments by 

annuity component and 

tax year.

Public Law 

103-66, the 

Omnibus 

Budget 

Reconciliation 

Act of 1993

Tax Years 

1994 and Later

RRA payment 

amounts that 

were never 

reported to the 

IRS as 

taxable. 

These include 

payments that 

are not 

otherwise 

reportable, 

such as pre1984 regular 

annuity 

amounts, 

SALSA 

payments, 

RLS, 

payments, etc.

$600 or more of 

overpayment principal, 

interest, penalty, and 

administrative costs 

representing amounts 

that were never reported 

to the IRS as taxable 

must be reported as paid 

amounts in the year the 

RRB waives, 

compromises, or 

otherwise deems the 

debts permanently

uncollectible.

Debts written off as 

uncollectible, but not 

permanently 

uncollectible, are not 

impacted.

Public Law 

103-465, the 

Uruguay 

Round 

Payments 

Issued January 

1, 1995 and 

Later

SSEB Tier 1 

and Overall 

Minimum 

The portion of potentially 

taxable SSEB benefits 

paid to nonresident 
TOM 10

TOM 10 Taxation Legislation, Guidelines and Principles Revised March 20, 2023 Page 61 of 74

Agreements 

Act, also 

referred to as 

the General 

Agreement on 

Tariffs and 

Trade (GATT)

Formula 

Benefits

aliens increases from 

50% to 85%.

February 8, 

1995 

Memorandum

From LAW

Payments 

Dated February 

1, 1995 and 

Later

Tier 1 Tier 1 payments to 

convicted and 

incarcerated felons and

the institutionalized 

criminally insane should 

be considered NSSEB 

payments as the Social 

Security Act does not 

allow payments to these 

individuals.

[Footnote: See Social 

Security Act Sections 

202(x)(1) and 202(n) for 

current information 

about individuals to 

whom the SSA does not 

allow payments.]

July 2, 1995 

Memorandum

From LAW

Applicable to 

Any Payments 

From Which 

Income Taxes 

Were Withheld. 

For 

Documentation 

Purposes Only.

SSEB Tier 1 

and Overall 

Minimum 

Formula 

Benefits, 

NSSEB Tier 1, 

Tier 2, VDB, 

and 

Supplemental 

Annuities

Taxes withheld from 

payments issued after 

an annuitant’s date of 

death represent 

amounts owed the RRB.

Public Law 

103-465, the 

Uruguay 

Round 

Agreements 

Act, also 

referred to as 

the General 

Agreement on 

Payments 

Issued January 

1, 1997 and 

Later

SSEB Tier 1 

and Overall 

Minimum 

Formula 

Benefits

Voluntary U.S. citizen 

SSEB tax withholding is 

allowed based on IRS 

set percentages.
TOM 10

TOM 10 Taxation Legislation, Guidelines and Principles Revised March 20, 2023 Page 62 of 74

Tariffs and 

Trade (GATT)

June 9, 1998 

Legal Opinion 

L-98-14

Varying Dates, 

But No Later 

Than 

Payments 

Dated January 

1, 2000

SSEB Tier 1 

and Overall 

Minimum 

Formula 

Benefits

NSSEB Tier 1, 

Tier 2, VDB, 

and 

Supplemental 

Annuities

IRC Section 1441 

withholding certificate 

requirement that an 

individual’s United 

States taxpayer 

identifying number must 

be on a tax treaty 

exemption claim form for 

the exemption claim to 

be valid. 

Tax treaty exemption 

claims provide for 

reduced tax withholding 

for nonresident aliens of 

the United States under 

income tax treaties in 

effect between the 

United States and 

certain countries of 

residence for tax 

purposes.

Public Law 

107-16, the 

Economic 

Growth and 

Tax Relief 

Reconciliation 

Act of 2001

Payments 

Issued August 

1, 2001 and 

Later

SSEB Tier 1 

and Overall 

Minimum 

Formula 

Benefits

NSSEB Tier 1, 

Tier 2, VDB, 

and 

Supplemental 

Annuities

Voluntary U.S. citizen 

SSEB tax withholding 

percentages changed. 

The changes end 

December 31, 2010 

under a Sunset 

Provision in the 

legislation.

U.S. citizen tax table 

rates were lowered from 

the rates in effect as of 

the first of the year.

February 22, 

2002 Legal 

Opinion 

L-2002-02 not 

objecting to a 

proposed 

change in tax 

Tax 

Statements 

Prepared

January 1, 

2002 and Later

Reportable 

payments, 

repayments, 

tax 

withholding 

amounts, etc.

Otherwise reportable 

payments and 

repayments associated 

with periods covered by 

annuity application 

cancellations are to be 
TOM 10

TOM 10 Taxation Legislation, Guidelines and Principles Revised March 20, 2023 Page 63 of 74

statement 

reporting of 

annuity 

cancellations

March 22, 2002 

Chief of 

Payment, 

Analysis, and 

Systems Policy 

Decision

reported for the year in 

which they occur.

We no longer suppress 

reporting of current year 

payments and 

repayments and no 

longer issue zero value 

prior year tax statements 

for periods covered by 

cancelled annuity 

entitlements.

Public Law 

108-27, the 

Jobs and 

Growth Tax 

Relief 

Reconciliation 

Act of 2003

Payments 

Issued August 

1, 2003 and 

Later

SSEB Tier 1 

and OM 

Formula 

Benefits

NSSEB Tier 1, 

Tier 2, VDB, 

and 

Supplemental 

Annuities

Voluntary U.S. citizen 

SSEB tax withholding 

percentages changed. 

The changes end 

December 31, 2010 

under a Sunset 

Provision in the 

legislation.

U.S. citizen tax table 

rates were lowered from 

the rates in effect as of 

the first of the year.

Public Law 

111-5, the 

American 

Recovery and 

Reinvestment 

Act of 2009

Payments 

Issued April 

2009 and Later

NSSEB Tier 1, 

Tier 2, VDB, 

and 

Supplemental 

Annuities

U.S. citizen tax table 

rates were lowered from 

the rates in effect as of 

the first of the year.

Public Law 

111-115, the 

No Social 

Security 

Benefits for 

Prisoners Act 

of 2009.

September 7, 

2010 Legal 

opinion L-2010-

07, Payment 

Payments 

Issued 

December 15, 

2009 and Later

SSEB and 

NSSEB Tier 1 

payments and 

SSEB OM 

payments.

Section 204 of the Social 

Security Act (SSA) was 

amended disallowing 

payment of accrued SSA 

benefits to individuals 

while they are subject to 

nonpayment of recurring 

benefits under Section 

202(x)(1).

The RRA has no 

payment restrictions. 
TOM 10

TOM 10 Taxation Legislation, Guidelines and Principles Revised March 20, 2023 Page 64 of 74

and Taxation 

Impact of the 

legislation.

Accrued tier 1 and OM 

payments may be issued 

to these same 

individuals.

Accruals due for what 

would be nonpayment 

periods at SSA - Tier 1 

should be paid as 

NSSEB and the OM 

should exclude the 

individual from the 

computation and be paid 

as SSEB.

Accruals due for periods 

before what would be 

nonpayment periods at 

SSA - Tier 1 should be 

paid as SSEB or NSSEB 

or SSEB/NSSEB splits 

without regard to the 

nonpayment period, and 

the OM should include 

the individual in the 

computation and be paid 

as SSEB.

TOM 20 Exhibit 2, History of Tax Statement Forms Used to Report 

Federally Taxable RRA Payments and Repayments

Tax Statement 

Type

Effective Tax 

Years

Individuals Taxed 

As

RRA Payments 

Affected

IRS Forms 

G-1099

1966 Through 

1983

U.S. Citizens and 

NRAs

Supplemental 

Annuity

Forms 

RRB-1099

1984 and 1985

1984

U.S. Citizens

NRAs

Tier 1, OM 

formula
TOM 10

TOM 10 Taxation Legislation, Guidelines and Principles Revised March 20, 2023 Page 65 of 74

Forms 

RRB-W-2P

1984 and 1985 U.S. Citizens and 

NRAs

Tier 2, VDB, 

Supplemental 

Annuity

Forms 

RRB-1042S

1985 NRAs Tier 1, OM 

formula

Forms 

RRB-1099

Tax Years 1986 

and Later

U.S. Citizens SSEB Tier 1, OM 

formula

Forms 

RRB-1042S

1986 and Later NRAs SSEB Tier 1, OM 

formula

Forms 

RRB-W-2P

1986 Through 

1990

U.S. Citizens and 

NRAs

NSSEB Tier 1, 

Tier 2, VDB, 

Supplemental 

Annuity

Forms 

RRB-1099-R 

(12-92)

1990 and earlier U.S. Citizens and 

NRAs

NSSEB, Tier 2, 

VDB, 

Supplemental 

Annuity

Forms 

RRB-1099-R

1991 and Later U.S. Citizens and 

NRAs

NSSEB, Tier 2, 

VDB, 

Supplemental 

Annuity

Forms 

RRB-1099-R 

(12-92)

For Corrected 

Forms RRB-W-2P 

for Tax Years 

1990 and Earlier

U.S. Citizens and 

NRAs

1984 through 

1985: Tier 2, 

VDB, 

Supplemental 

Annuity

1986 through 

1990: NSSEB, 

Tier 2, VDB, 

Supplemental 

Annuity

IRS Forms 

1099-C

1994 and Later U.S. Citizens and 

NRAs

Permanent 

cancellation of 

$600.00 or more 

of debt that has 

never been 
TOM 10

TOM 10 Taxation Legislation, Guidelines and Principles Revised March 20, 2023 Page 66 of 74

reported to the 

IRS as taxable

TOM 20 Exhibit 3, Simplified Tax Accounting Effective Tax Year 

1994 – Merge and Cross Component Recovery Processing

1. The Merge Occurs Only Within a Component. 

The merge is the act of netting overpayments and underpayments within a 

component. In the examples below, negative amounts = overpayments and

positive amounts = underpayments (PDs), unless they are designated as 

repayments (REPDs)

Component & Tax 

Years

Original Amounts Amounts After the 

Merge

SSEB Yr 2 - $ 500.00 $ 0.00

SSEB Yr 1 + $ 500.00 $ 0.00

SSEB Total $ 0.00 $ 0.00

Component & Tax 

Years

Original Amounts Amounts After the 

Merge

NSSEB Yr 1 - $1,000.00 - $ 500.00

NSSEB Cur Yr + $ 500.00 $ 0.00

NSSEB Total - $ 500.00 - $ 500.00

a. Pre-1984 Tier 2 and VDB Overpayments May Be Merged With Like 

Component Post 1983 Underpayments.

Merging pre-1984 overpayments with post 1983 underpayments reduces 

reportable post 1983 underpayments. Reducing payments reported on tax 

statements is to the annuitant’s advantage.

Tax Years OP/UP 

Amounts

Annuitant 

Receives

Reportable to 

the IRS

Pre-1984 - $ 500.00 $ 0.00 $ 0.00
TOM 10

TOM 10 Taxation Legislation, Guidelines and Principles Revised March 20, 2023 Page 67 of 74

Post 1983 + $1,000.00 + $ 500.00 + $ 500.00 PD

b. Pre-1984 Tier 2 and VDB Underpayments MAY NOT Be Merged With

Like Component Post 1983 Overpayments.

Not allowing pre-1984 underpayments to be merged with post 1983 

overpayments keeps reportable post 1983 repayments at a maximum. 

Increasing repayments reported on tax statements is to the annuitant’s 

advantage.

Tax Years OP/UP 

Amounts

Annuitant 

Received

Reportable to 

the IRS

Pre-1984 + $1,000.00 + $ 500.00 $ 0.00

Post 1983 - $ 500.00 $ 0.00 + $ 500.00 REPD

2. Cross Component Recovery Occurs Only Across or Between 

Components.

Cross component recovery is the act of recovering one or more component 

overpayment(s) from one or more component underpayment(s). It is 

performed after any merge within components.

Component & 

Tax Years

Original 

Amounts

Amounts After 

the Merge

Amounts After 

CC Recovery

 SSEB Yr 2 - $ 1,500.00 - $ 700.00 - $ 300.00

 + $ 400.00 REPD

 SSEB Yr 1 + $ 800.00 $ 0.00 $ 0.00

 SSEB Total - $ 700.00 - $ 700.00 - $ 300.00

 NSSEB Yr 2 - $ 100.00 $ 0.00 $ 0.00

 NSSEB Yr 1 + $ 500.00 + $ 400.00 PD + $ 400.00 PD

 NSSEB Total + $ 400.00 + $ 400.00 + $ 400.00 PD
TOM 10

TOM 10 Taxation Legislation, Guidelines and Principles Revised March 20, 2023 Page 68 of 74

Component & 

Tax Years

Original 

Amounts

Amounts After 

the Merge

Amounts After 

CC Recovery

 SSEB Yr 2 - $ 1500.00 - $ 700.00 - $ 200.00

 + $ 500.00 REPD

 SSEB Yr 1 + $ 800.00 $ 0.00 $ 0.00

 SSEB Total - $ 700.00 - $ 700.00 - $ 200.00

 T2 Post 1983 + $ 500.00 + $ 500.00 PD + $ 500.00 PD

 T2 Total + $ 500.00 + $ 500.00 + $ 500.00

3. Accrual accounting captures underpayments and overpayments. We 

create repayments from a combination of underpayments and 

overpayments.

a. If one component's underpayments are greater than or equal to 

another component's overpayments, repayments are equal to the 

overpayments. (If PDs are > or = OPs, then REPDs = OPs) 

Tier 1 overpayment = $1,000.00

Tier 2 underpayment = $2,000.00

The $2,000.00 underpayment is > the $1,000.00 overpayment, so 

repayments = $1,000.00. The following is reportable:

Tier 1 repayment = $1,000.00

Tier 2 payment = $2,000.00

b. If one component's underpayments are less than another 

component's overpayments, then the overpaid component's 

repayments are equal to the underpayment. (If PDs are < OPs, then 

REPDs = PDs) 

Tier 1 overpayment = 2,000.00

Tier 2 underpayment = $1,000.00

The $1,000.00 underpayment is < the $2,000.00 overpayment, so the 

repayment is = to $1,000.00. The following is reportable:

Tier 1 repayment = $1,000.00

Tier 2 payment = $1,000.00
TOM 10

TOM 10 Taxation Legislation, Guidelines and Principles Revised March 20, 2023 Page 69 of 74

TOM 20 Exhibit 4, The Order of Annuity Deductions and How It 

Affects Taxable Component Payment Amounts

See TOM 20.40, Annuity Deductions, for an explanation of various annuity 

deductions, the order of deductions, and component specific and non-component 

specific deductions. The item C example contains maximum component 

payment amounts and maximum deduction amounts. The complexity is beyond 

a normal record situation, but is provided to demonstrate the functionality of the 

order of annuity deductions processing.

A. Multiple Deductions and the Order in Which They Should be Applied to 

Annuity Components

The order of annuity deductions for taxation purposes is as follows:

RRA Annuity Deductions

1 Work Deduction Amounts

2 Waiver Amounts

3 Partition Deduction Amounts

4 Garnishment Deduction Amounts

5 Actuarial Adjustment Amounts

6 Partial Withholding Repayment Amounts

7 Tax Withholding Amounts

8 RR SMIB Deduction Amounts

B. Component Specific Deductions and Non-Component Specific 

Deductions.

Component Specific Non-Component Specific

Work Deductions Garnishments

Partitions Actuarial Adjustments

Some Waivers Some Waivers

Repayments Tax Withholding

SMIB Premiums

C. Example of Allocating Multiple Annuity Deductions to Components.

Gross Paids: Reg Ann = $2,200.00 / Supp Ann = $43.00

$1,000.00 SSEB

$ 400.00 NSSEB
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TOM 10 Taxation Legislation, Guidelines and Principles Revised March 20, 2023 Page 70 of 74

$ 600.00 Tier 2

$ 200.00 VDB

$ 43.00 Supp Ann

Deductions: Reg Ann = $1,255.00 / Supp Ann = $ 41.50

$ 500.00 Tier 1 Work Deduction

$ 300.00 Tier 2 Work Deduction

$ 50.00 VDB Work Deduction

$ 21.50 Supp Work Deduction

$ 50.00 Unspecified Waiver

$ 150.00 Tier 2 Partition Deduction

$ 20.00 Supp Partition Deduction

$ 25.00 Actuarial Adjustment

$ 150.00 Specified Partial Withholding

 $ 100.00 x .82550 (established NSSEB %), rounded = NSSEB Repaid

 $ 100.00 - NSSEB Repaid = Tier 2 Repaid

$ 80.00 SMIB Deduction

Below is an allocation of the components paid and deduction amounts as 

described above. Deductions are allocated in the designated order and the new 

component paid amounts are shown after each deduction.

AA = Actuarial Adjustment

Pd = Paid

Prtn = Partition

Rpd = Repaid

Smi = SMIB

Wd = Work Deduction

Wvr = Waiver

SSEB NSSEB Tier 2 VDB Supp

$1,000.00 Pd $ 400.00 Pd $ 600.00 Pd $ 200.00 Pd $ 43.00 Pd

- $ 500.00 Wd - $ 300.00 Wd - $ 50.00 Wd - $ 21.50 Wd

 $ 500.00 Pd $ 400.00 Pd $ 300.00 Pd $ 150.00 Pd $ 21.50 Pd

- $ 18.52 Wvr - $ 14.82 Wvr - $ 11.11 Wvr - $ 5.55 Wvr

 $ 481.18 Pd $ 385.18 Pd $ 288.89 Pd $ 144.45 Pd $ 21.50 Pd

- $ 150.00 Prtn - $ 20.00 Prtn
TOM 10

TOM 10 Taxation Legislation, Guidelines and Principles Revised March 20, 2023 Page 71 of 74

 $ 481.18 Pd $ 385.18 Pd $ 138.89 Pd $ 144.45 Pd $ 1.50 Pd

- $ 10.47 AA - $ 8.37 AA - $ 3.02 AA - $ 3.14 AA

 $ 471.01 Pd $ 376.81 Pd $ 135.87 Pd $141.31 Pd $ 1.50 Pd

- 82.55 Rpd - $ 17.45 Rpd

 $ 471.01 Pd $ 294.26 Pd $ 118.42 Pd $141.31 Pd $ 1.50 Pd

- $ 80.00 Smi

 $ 391.01 Pd $ 294.26 Pd $ 118.42 Pd $141.31 Pd $ 1.50 Pd

Net Regular Annuity Net Supp Ann

$ 945.00 $ 1.50

Prorations

Unspecified Waiver = $50.00

$ 500.00 SSEB

$ 400.00 NSSEB

$ 300.00 Tier 2

$ 150.00 VDB

$1,350.00

500.00/1,350.00 = .37037 x $50.00 = $ 18.52 SSEB Wvr

400.00/1,350.00 = .29630 x $50.00 = $ 14.82 NSSEB Wvr

300.00/1,350.00 = .22222 x $50.00 = $ 11.11 Tier 2 Wvr

 $ 44.45

$50.00 - $44.45 = $ 5.55 VDB Wvr

 $ 50.00 Total Unspecified Waiver

Actuarial Adjustment = $25.00

$ 481.48 SSEB

$ 385.18 NSSEB

$ 138.89 Tier 2

$ 144.45 VDB

$1,150.00

481.48/1,150.00 = .41868 x $25.00 = $ 10.47 SSEB AA

385.18/1,150.00 = .33494 x $25.00 = $ 8.37 NSSEB AA

138.89/1,150.00 = .12077 x $25.00 = $ 3.02 Tier 2 AA

 $ 21.86

$25.00 - $21.86 = $ 3.14 VDB AA

 $ 25.00 Total Actuarial Adjustment

Partial Withholding = $100.00

Established OP percentage: NSSEB = .82550

 Tier 2 = remainder

.82550 x $100.00 = $ 82.55 NSSEB Rpd

$100.00 - 82.55 = $ 17.45 Tier 2 Rpd
TOM 10

TOM 10 Taxation Legislation, Guidelines and Principles Revised March 20, 2023 Page 72 of 74

 $100.00 Total Partial Withholding

TOM 20 Exhibit 5, Posting TAS Recoveries of Payments Gross 

and Net of Tax Withholding and Gross and Net of SMIB

A. Recovery in the Year of Payment Issue

1. Reason for Recovery is NOT Death

Recovered 

Payment Type

Component 

Type

Recovery 

Should Be

Gross/Net of 

TWH

Gross/Net 

of SMIB

Monthly SSEB + Repaid Gross Net

Monthly NSSEB, T2, 

VDB, Supp 

Ann

+ Repaid Gross Net

Accrual SSEB + Repaid Gross Net

Accrual NSSEB, T2, 

VDB, Supp 

Ann

- Paid Gross Net

2. Reason for Recovery IS Death

a. Original Payment Date is EARLIER THAN OR EQUAL TO the 

Month of Death

Recovered 

Payment Type

Component 

Type

Recovery 

Should Be

Gross/Net 

of TWH

Gross/Net 

of SMIB

Monthly SSEB + Repaid Gross Net

Monthly NSSEB, T2, 

VDB, Supp 

Ann

+ Repaid Gross Net

Accrual SSEB + Repaid Gross Net

Accrual NSSEB, T2, 

VDB, Supp 

Ann

- Paid Gross Net

b. Original Payment Date is LATER THAN the Month of Death
TOM 10

TOM 10 Taxation Legislation, Guidelines and Principles Revised March 20, 2023 Page 73 of 74

Recovered 

Payment Type

Component 

Type

Recovery 

Handled 

As

Gross/Net 

of TWH

Gross/Net 

of SMIB

Monthly SSEB - Paid Gross Gross

Monthly NSSEB, T2, 

VDB, Supp 

Ann

- Paid Gross Gross

Accrual SSEB - Paid Gross Gross

Accrual NSSEB, T2, 

VDB, Supp 

Ann

- Paid Gross Gross

A. Recovery in A Year After the Year of Payment Issue

1. Reason for Recovery is NOT Death

Recovered 

Payment 

Type

Component 

Type

Recovery 

Handled As

Gross/Net 

of TWH

Gross/Net 

of SMIB

Monthly SSEB + Repaid Net Net

Monthly NSSEB, T2, 

VDB, Supp 

Ann

+ Repaid Net Net

Accrual SSEB + Repaid Net Net

Accrual NSSEB, T2, 

VDB, Supp 

Ann

+ Repaid Net Net

a. Original Payment Date is EARLIER THAN OR EQUAL TO the Month 

of Death

Recovered 

Payment 

Type

Component 

Type

Recovery 

Handled As

Gross/Net 

of TWH

Gross/Net 

of SMIB

Monthly SSEB + Repaid Net Net

Monthly NSSEB, T2, 

VDB, Supp Ann

+ Repaid Net Net
TOM 10

TOM 10 Taxation Legislation, Guidelines and Principles Revised March 20, 2023 Page 74 of 74

Accrual SSEB + Repaid Net Net

Accrual NSSEB, T2, 

VDB, Supp Ann

+ Repaid Net Net

b. Original Payment Date is LATER THAN the Month of Death

Recovered 

Payment 

Type

Component 

Type

Recovery 

Handled As

Gross/Net 

of TWH

Gross/Net 

of SMIB

Monthly SSEB - Paid Net Gross

Monthly NSSEB, T2, 

VDB, Supp Ann

- Paid Net Gross

Accrual SSEB - Paid Net Gross

Accrual NSSEB, T2, 

VDB, Supp Ann

- Paid Net Gross