Reporting Instructions for Creditable Sickness Payments

Chapter 2: Reporting Sick Pay Compensation

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Creditable Sick Pay Compensation is Tier 1 Compensation

Under the Railroad Retirement Act and Railroad Unemployment Insurance Act (RUIA), there are 

three types of creditable compensation which must be reported to the Railroad Retirement Board 

(RRB): Tier I, Tier II, and Railroad Unemployment Insurance Act compensation.

Sick Pay is only creditable as Tier I compensation. Therefore, sickness payers are required to report 

sickness payments as Tier I compensation to the RRB. An annuitant's sick pay compensation 

credits are only used in the computation of the Tier I portion of their railroad retirement annuity.

Generally, sickness payments made in a year would not exceed the Tier I maximum amount, but 

combined sickness payments and other Tier I compensation may exceed the maximum, To prevent 

crediting and taxing sickness payments in excess of the maximum, the sickness payer should obtain 

information about the amount of creditable Tier I compensation paid by a rail employer. See 

Chapter 4. 

Notification of Compensation Maximums

The Tier I annual maximum earnings base is established by the Social Security Administration 

and published in the Federal Register. On or about November 15 of each year, the RRB sends all 

employers, including sick pay employers, a circular letter which provides information about the 

tax rates and earnings maximums for the following year.

Compensation Reporting Responsibilities 

The responsibility for reporting compensation and depositing and reporting taxes depends on the 

type of sickness benefit paid and who is making the payment. The responsibilities for three types 

of sickness benefit payers are as follows. 

1. Supplemental Sick Pay Paid by the regular Rail or Labor Employer

If the regular employer directly pays supplemental sick pay that employer is responsible 

for filing all reports and for withholding and paying all taxes in connection with the 

payment. The employer files the reports under the employer's regular BA and EIN 

numbers. The employer includes the supplemental sick pay compensation with all other 

compensation on the employee's Form W-2.

2. Sick Pay Paid by RRB or an Insurance Company who has Established Sick Pay Employer 

Status under the Railroad Retirement and Railroad Unemployment Insurance Acts

The RRB will assign a BA number to insurance companies who pay sickness benefits for 

accounting purposes. Insurance companies having employer status are referred to in these 

instructions as Sick Pay employers.
Reporting Instructions for Creditable Sickness Payments

Chapter 2: Reporting Sick Pay Compensation

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RRB Sick Pay Employer Responsibilities:

• Withhold the employee Tier 1 tax from the Sick Pay;

• Deposit the tax withheld with the IRS;

• Notify the regular employer of the amount of sick pay paid to its employees. (The RRB 

releases Form ID-6, Transmittal Report of Tier I Tax Transactions to notify railroad 

employers of the amount of sickness benefits the RRB paid.);

• File Form CT-1 with the IRS to report the employee Tier I tax withheld on the sick pay 

using the regular employer's EIN;

• File Form BA-3 with the RRB using the Sick Pay payer's BA number; and

• File Forms W-2 and W-3 with the Social Security Administration. (See IRS Pub 915).

Railroad Employer's Responsibilities:

• Provide the sickness payer with the last month the employee worked prior to claiming 

sick pay;

• The total compensation paid to the employee during the calendar year; and

• The employee's contribution to the sick pay plan, if any.

Note: The above information is needed by the third party in order to determine the 

appropriate employee Tier I tax to be withheld from the sick pay.

• Pay the employer matching Tier I tax when notified that sickness payments were made;

• Include on Form CT-1 filed with the IRS, the employer matching Tier I tax deposited 

for the sickness payments.

3. Other Sickness Payers

Companies who do not have employer status under the Railroad Retirement or 

Unemployment and Sickness Insurance Acts are referred to as other third party sickness 

payers.

An employer may arrange for a third party to act as the employer's agent for the payment 

of sick pay. The employer may or may not arrange for the third party to provide 

administrative services for the employer such as filing Forms CT-1 and BA-3. The 

responsibilities are divided by agreement between the employer and the third party. If the 

third party does provide such administrative services, they are doing so as an agent of the 

railroad employer and not as an employer under the RRA. Therefore, the third party would 

file Form BA-3 using the rail employer's BA number. The employer would include the 

supplemental sick pay compensation on the employee's Form W-2 along with other 

compensation. 

Coordinating Supplemental Benefits with Bureau Unemployment Sickness Insurance 

If you are paying supplemental sick pay under a plan whereby you pay the difference between the 

sick benefits paid by the RRB and a set amount, such as the employee's regular salary, you must 
Reporting Instructions for Creditable Sickness Payments

Chapter 2: Reporting Sick Pay Compensation

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have your plan approved by the RRB. You may also want to establish a procedure whereby you 

receive notification from the RRB of sickness benefit payments so that your payments are 

coordinated with RRB Sickness benefits. Contact: 

Chief of RUIA, Internet and Support

Railroad Retirement Board 

844 North Rush Street 

Chicago, Illinois 60611-1275

Creditable Sick Pay vs Regular Earnings vs Non-creditable Sick Benefits

Sometimes it is difficult to determine whether a sickness or disability payment is creditable as 

regular earnings or as sick pay or whether the compensation is creditable at all. The following 

instructions, table, and examples are to help clarify these distinctions.

Regular Earnings

If an employee is covered under a plan whereby he or she receives regular earnings or salary while 

unable to work, this is regular earnings rather than sick pay. Payments under a wage continuation 

plan are generally considered regular earnings. Regular earnings are creditable as Tier I, Tier II, 

and RUIA compensation and generate service month credit for the months in which the 

compensation is paid. Any payment made through the railroad employer's regular payroll system 

is presumed to be regular compensation.

Non-Creditable Sick Benefits

Some payments are excluded from creditable and taxable compensation by law and regulation 

whether paid by the employer or another party. Excluded are payments:

• made under a worker's compensation law;

• made following the sixth month after the month the employee last worked;

• made after the calendar year of the employee's death;

• made under the Railroad Unemployment Insurance Act based on an on-the-job injury;

• that exceed the Tier I earnings base;

• of medical and hospital expenses; and

• attributable to employee contributions to a sick pay plan made with after-tax dollars. 
Reporting Instructions for Creditable Sickness Payments

Chapter 2: Reporting Sick Pay Compensation

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Sick Pay vs Regular Earnings vs Non-Creditable Sick Benefits

Type of Benefit Regular 

Compensation

Sick Pay 

Compensation

Not Compensation 

Under 

RRA/RRTA

1 Full salary while unable to 

work due to illness, injury etc. X

2 Partial salary while unable to 

work. X

3

Sick Pay paid by employer to 

employees generally. (Also see 

#6 and #7.)

X

4 Sick Pay paid by employer on a 

discretionary basis. X

5

Sick Pay paid by RRB, sick pay 

employer, or other third party. 

(Also see #6 and #7.)

X

6

Sick Pay paid after the 6th 

month following the month the 

employee last worked

X

7

Sick or disability benefit paid 

under an insurance plan 

whereby employee pays the 

premiums

X

8

Sick or disability benefit paid 

under an insurance plan where 

the employer pays all of the 

premiums or cost

X

9

Sick or disability benefit paid 

under an insurance plan where 

both the employee and 

employer pay part of the 

premiums

X X

10 Supplemental Sick Pay paid by 

the employer X

11 Disability benefit based on an 

injury not loss of work X

 

* The sick benefits are creditable Tier I compensation in an amount based on the percent the 

employer pays for the sick pay insurance premium or cost. 

Examples of Above Types of Benefits

1. An employer pays its employees their full salary and benefits for 30, 60, or 120 days of 

sickness depending on the employee's seniority.
Reporting Instructions for Creditable Sickness Payments

Chapter 2: Reporting Sick Pay Compensation

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2. Same as #1 except employee is carried on the payroll at 80% of regular salary. For an 

employee to be considered in receipt of regular earnings does not require that they receive 

the full amount of the regular earnings. The employee would receive the employee benefits 

normally accruing with the payment of regular earnings.

3. An employer provides sick pay for all salaried employees equal to 100% of the employees' 

salary for up to 30 days in a calendar year.

4. An employer pays 30 days sick pay to employees who have maintained an above average 

rating during the period preceding the sickness.

5. An employer contracts with Provident Insurance Company to pay supplemental sickness 

benefits to all employees in the bargaining unit.

6. An employee last worked 11/10/12 and was laid off. In June 2013, the employee receives 

sick pay for maternity and child birth. The sick pay is not creditable or taxable because it 

was paid after the sixth month following the month last worked. This determination is 

based on the date of the payment rather than the date of the sickness. Therefore, if the above 

employee had given birth in December 2012 but through a processing error was not paid 

sickness benefits until June 2013, the benefits would still not be taxable or creditable.

7. The employee has $40 withheld from his earnings each period to pay the premium for a 

group disability insurance which will pay full salary for 150 days should the employee 

become sick or injured. Even though this group plan is offered only to employees of the 

employer, it is a private plan because the employer incurs no cost.

8. The employer offers a cafeteria type benefit plan under which one of the optional benefits 

is sick pay. If the employee elects sick pay, he or she will be paid their full salary if they 

are off work due to sickness. Any sick pay paid under this option is creditable as Tier I sick 

pay compensation. Sick benefits paid under a cafeteria plan are considered sick pay, 

because they are either paid by the employer, or paid with pre-tax dollars.

9. The employer provides a comprehensive health care package which includes medical 

insurance, hospitalization, free exams, tests and inoculations, and sickness benefits. The 

employee contributes $90 to the package and the employer contributes $200 each month. 

If the employee receives $950 in sick pay under this package, the sick pay is creditable and 

taxable in proportion to the employer's share of the cost, i.e., 200/290, or $655.

10. The employer supplements sickness benefits paid by the RRB to bring the total paid to 

80% of the employee's regular earnings.

11. The employer pays disability benefits of $35,000 to an employee based on the employee's 

loss of sight which was not job related.