2021 NATIONAL RAIL EMPLOYERS TRAINING SEMINAR

Navigating Form BA-15:

Report of Stock Options and Other Payments

Carl May, Chief of Financial Interchange Division

Vincent Lui, Actuary

August 4, 2021
THE INS AND OUTS OF FORM BA-15

 What is the Financial Interchange (FI)?

 What is Form BA-15? 

 What changed? Why a new Form BA-15 now?

 What is Form BA-15 for?

 What data are collected on Form BA-15?

 Form BA-15 helpful hints

 Reporting requirements

 Due date, frequency of reporting, data format

 How to fill out the form? Some examples. 

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AN INTRODUCTION TO THE FINANCIAL INTERCHANGE (FI)

 The financial interchange between the railroad retirement and social security systems is intended to 

place the Social Security Old-Age and Survivors Insurance (OASI) and Disability Insurance (DI) Trust 

Funds and the Centers for Medicare and Medicaid Services Hospital Insurance (HI) Trust Fund in the 

same condition they would have been had railroad employment been covered by the Social Security 

and Federal Insurance Contributions Acts (FICA). 

 Every year estimates are made of the additional benefits and administrative expenses that would have 

been paid from the Trust Funds as well as the additional payroll taxes and income taxes that would 

have been received by them, with allowances for interest.

 For fiscal year 2020, $4.90 billion was transferred from the OASDI trust funds to the RRB in June 

2021, whereas $0.57 billion was due to the HI trust fund from the RRB.

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FINANCIAL INTERCHANGE IS PART OF BAR

RRB

BEA FI Actuaries

BAR Bureau of the Actuary and Research

Led by Chief Actuary, Keith Sartain

Benefit and Employment Analysis Financial Interchange Valuation and Funding of the Program

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WHAT CHANGED? WHY A NEW BA-15 NOW?

 In Wisconsin Central Ltd. v. U.S., 138 S. Ct. 2067 (2018), the U.S. Supreme Court ruled that non-qualified stock 

options (NQSOs) are not taxable under Section 3231 of the Railroad Retirement Tax Act (RRTA) but 

would be taxable under Federal Insurance Contributions Act (FICA). 

 In other words, Tier 1 and Tier 2 taxes are not withheld when an employee, who is covered by the RRTA, exercises 

stock options. Federal income tax must still be withheld on taxable compensation from railroad employees 

exercising their options under the FICA. 

 Additionally, in Union Pacific Railroad Co. v. U.S., 865 F.3d 1045 (8th Cir. 2017), the Eight Circuit Court of 

Appeals determined whether certain ratification payments were taxable under the RRTA.

 Form BA-15 was created so that railroad employers can provide information on the value of NQSOs and 

any ratification payments separately from a railroad worker’s reported RRTA compensation.

 FI uses reported stock option information to determine the appropriate payroll taxes due to the Social 

Security Administration (SSA) and Centers for Medicare and Medicaid Services (CMS) and to administer 

the transfer of funds between the three agencies.

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WHAT IS FORM BA-15 FOR?

 Form BA-15 collects data on stock options and other payments from employers primarily 

for use in the annual financial interchange determination.

 Specifically, the information on stock options and other payments is essential in 

determining the payroll tax amounts involved in the financial interchange with SSA and 

CMS.

 In addition, cash flow projections of the Social Security Equivalent Benefit Account 

(SSEBA) and the Railroad Retirement Account (RRA), as well as other cost estimates 

made for proposed amendments to laws administered by the RRB are dependent on 

inputs developed from the information collected on Form BA-15.

 The FI Division does not use stock options data collected on Form BA-15 to calculate 

benefit payments to beneficiaries.

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WHAT DATA ARE COLLECTED ON FORM BA-15?

The employer is required by section 209.2 of the RRB's Regulations to report and submit a 

Form BA-15, Report of Stock Options and Other Payments for all employees that received 

non-qualified stock options (NQSOs) and/or ratification payments during the previous year. 

The report includes:

1. Medicare wages, 

2. RRTA gross compensation, 

3. The amount of NQSOs exercised, if any, 

4. The amount of ratification payments received, if any. 

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MORE ON MEDICARE WAGES

Medicare wages consist of all earnings that 

would be taxable under the hospital 

insurance portion of the FICA.  See www.irs.gov/instructions/iw2w3

(Instructions for Forms W-2 and W-3) and 

www.irs.gov/pub/irs-pdf/i941.pdf

(Instructions for Form 941) for details. 

 Note that Medicare wages should 

exclude pre-taxable deductions for 

cafeteria plans (also known as flexible 

benefit plans).

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MORE ON RRTA GROSS COMPENSATION

RRTA Gross compensation consists of all earnings taxable under the hospital insurance portion of the 

Tier I tax. This includes but is not limited to:

 Earnings above the taxable limit, 

 Sick pay, and

 Miscellaneous compensation.

However, RRTA gross compensation may exclude:

 NQSOs,

 Ratification payments made to railroad employees that the railroad did not report as part of the 

employee’s RRTA compensation, and

 Pre-taxable deductions for cafeteria plans (also known as flexible benefit plans). 9
TAX IMPLICATIONS OF NONQUALIFIED STOCK OPTIONS

Upon grant:

 No tax impact upon grant, if granted at fair market value (FMV). 

Upon exercise: 

 The spread between exercise price and FMV of options is ordinary income, reported on the 

employee’s W-2 and is subject to withholding. 

 Minimum withholding is 25% for Federal, 1.45% for Medicare, and 6.2% for FICA (up to 

annual taxable limit), plus applicable state tax withholding. 

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A QUICK CHECK

Medicare Wages = RRTA Gross Compensation 

+ NQSOs 

+ Ratification Payments

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BA-15 HELPFUL HINTS

1. Do not limit the amounts on Form BA-15 to the annual Tier I or Tier II creditable 

maximum amounts for the year. 

2. An employee’s RRTA gross compensation report on Form BA-15 should not be 

less than the same employee’s Tier I amount on Form BA-3.

3. Amounts reported on Form BA-15 and creditable compensation reported on 

Form BA-3 must both be reported on the same basis, either “paid” or “earned”.

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REPORTING REQUIREMENTS

 Each employer is required by law to report the Medicare wages for each 

employee who has received either NQSOs or ratification payments. This 

information is an essential part of the data needed to compute the payroll tax 

calculations required in the financial interchange.

 If you have no employees receiving either NQSOs or ratification payments, you 

must file Form G-440 with the appropriate box on the Form G-440 indicating no 

employees to report.

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DUE DATES, FREQUENCY OF REPORTS, AND DATA FORMAT

 The BA-15 forms are to be reported for the same periods as used in determining 

the employer's annual report of creditable service and compensation (Form BA-3). 

 Employers will report stock options and other payments information annually to the 

RRB in a quarterly breakdown (see slide 17).

 Report information on compensation, stock options and other payments for tax 

years 2017, 2018, 2019, and 2020.

 Report information for all employees (i.e., not just those with SSNs ending in 30 as 

on Form BA-11).

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DUE DATES, FREQUENCY OF REPORTS, AND DATA FORMAT (CONT.)

 The Form BA-15 for the preceding calendar year is due the last day of February of 

the following year and must be accompanied by Form G-440, Report Specifications 

Sheet.

 Form BA-15 can be submitted via File Transfer Protocol (FTP), secure E-mail or sent 

via CD-ROM, as instructed in filing instructions. The format for the files can be found 

in the Excel data file (see slide 17). 

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MORE ON DATA FORMAT

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FORM W-2

17
IRS INSTRUCTIONS FOR BOX 12

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Example #1: Initial Reporting - "I"; Medicare Wages Above The Annual Taxable Limit

Overridge, Abby

SSN: 999-12-3456

BA Number: 9999

2020 Income Summary Total Q1 Q2 Q3 Q4

(a) Medicare Wages $250,000.00 $50,000.00 $50,000.00 $100,000.00 $50,000.00

(b) RRTA Gross Compensation $150,000.00 $25,000.00 $10,000.00 $100,000.00 $15,000.00

(c) Non-Qualified Stock Options (NQSOs) $100,000.00 $25,000.00 $40,000.00 $0.00 $35,000.00

(d) Non-Taxable Ratification Payments $0.00 $0.00 $0.00 $0.00 $0.00

1. Abby's 2020 Medicare wages (i.e., not limited by the 2020 taxable limit of $137,700) were $250,000 (as reported in

2020 Form W-2 Box 5), of which $100,000 was considered income from exercising non-qualified stock options (NQSOs).

Therefore, Abby's RRTA gross compensation for 2020 was $150,000.

2. NQSOs: During the year, Abby received income of $25,000 in Q1, $40,000 in Q2, $0 in Q3 and $35,000 in Q4 from exercising her

non-qualified stock options, for a total of $100,000.

3. Abby did not receive any ratification payments in 2020.

4. Abby's 2020 Form W-2 showed $100,000 in Box 12 for income from exercise of non-qualified stock options.

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Example #2: Initial Reporting - "I"; Medicare Wages Near The Annual Taxable Limit

Nearson, Burt

SSN: 999-34-5678

BA Number: 9999

2020 Income Summary Total Q1 Q2 Q3 Q4

(a) Medicare Wages $140,000.00 $37,500.00 $32,500.00 $32,500.00 $37,500.00

(b) RRTA Gross Compensation $130,000.00 $32,500.00 $32,500.00 $30,000.00 $35,000.00

(c) Non-Qualified Stock Options $10,000.00 $5,000.00 $0.00 $2,500.00 $2,500.00

(d) Non-Taxable Ratification Payments $0.00 $0.00 $0.00 $0.00 $0.00

1. Burt's 2020 Medicare wages (i.e., not limited by the 2020 taxable limit of $137,700) were $140,000 (as reported in

2020 Form W-2 box 5), of which $10,000 was considered income from exercising non-qualified stock options. 

2. During the year, Burt exercised some of his stock options and received income of $5,000 in Q1, $0 in Q2, $2,500 in Q3, and

$2,500 in Q4.

3. Burt did not receive any ratification payments in 2020.

4. Burt's 2020 Form W-2 showed $10,000 in box 12 for income from exercise of non-qualified stock options. 20
Example #3: Initial Reporting - "I"; Medicare Wages Below The Annual Taxable Limit

Underwood, Chip

SSN: 999-56-7890

BA Number: 9999

2020 Income Summary Total Q1 Q2 Q3 Q4

(a) Medicare Wages $50,000.00 $12,500.00 $12,500.00 $12,500.00 $12,500.00

(b) RRTA Gross Compensation $45,000.00 $12,500.00 $12,500.00 $7,500.00 $12,500.00

(c) Non-Qualified Stock Options $0.00 $0.00 $0.00 $0.00 $0.00

(d) Non-Taxable Ratification Payments $5,000.00 $0.00 $0.00 $5,000.00 $0.00

1. Chip's 2020 Medicare wages (i.e., below the 2020 taxable limit of $137,700) were $50,000 (as reported in 2020 Form W-2 Box 

5).

2. Chip did not receive any stock options from the employer, but he received a ratification payment of $5,000 in Q3.

3. Chip's 2020 RRTA gross compensation was $45,000 (i.e., $50,000 - $0 - $5,000)

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Example #4: Replacement Reporting - "R"; Medicare Wages Above The Annual Taxable Limit

Overridge, Abby

SSN: 999-12-3456

BA Number: 9999

2019 Income Summary Total Q1 Q2 Q3 Q4

(a) Medicare Wages $205,000.00 $50,000.00 $50,000.00 $55,000.00 $50,000.00

(b) RRTA Gross Compensation $105,000.00 $25,000.00 $10,000.00 $55,000.00 $15,000.00

(c) Non-Qualified Stock Options $100,000.00 $25,000.00 $40,000.00 $0.00 $35,000.00

(d) Non-Taxable Ratification Payments $0.00 $0.00 $0.00 $0.00 $0.00

1. Due to a reporting error, Abby's 2019 Medicare Wage was revised to $205,000, which was above the 2019 Social Security wage

base of $132,900. Abby also received income of $100,000 from exercising her non-qualified stock options in 2019. Therefore,

Abby's 2019 RRTA gross compensation was $105,000.

2. Abby did not receive any ratification payments in 2019.

3. Abby's 2019 Form W-2 showed $100,000 in box 12 for income from exercise of non-qualified stock options.

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