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This chapter explains the computations involved in the taxation of railroad 

retirement annuities. The following computations are explained:

• taxable amount of the railroad retirement annuity,

• taxable amount of the supplemental annuity,

• the employee contribution amount,

• taxability under the Three-Year Rule,

• taxability under the General Rule/Simplified General Rule, and

• how payments and repayments affect the taxability of an annuity.

105 How a Railroad Retirement Annuity Is Taxed

105.05 

Regular railroad retirement annuities consisting of tier 1, tier 2, and vested dual 

benefit components have been subject to United States Federal income tax since 

1984. Supplemental annuities have been subject to Federal income tax since 

1966. The residual lump sum (RLS) and lump sum death payment (LSDP) are 

not taxable.

The amount of tier 1 which would be payable if railroad employment had actually 

been covered under the Social Security Act, known as the social security 

equivalent benefit (SSEB), is treated as a social security benefit for Federal 

income tax purposes.

In addition, overall minimum (O/M) benefits are treated the same as social 

security benefits for Federal income tax purposes.

The portion of the tier 1 amount that exceeds social security equivalent benefits, 

known as the non-social security equivalent benefit (NSSEB), plus the tier 2 

component are treated like contributory private and public service pensions for 

Federal income tax purposes. Either the Three-Year Rule or the General Rule is 

used to figure the taxability of these benefits. This is explained in section 115.

The vested dual benefit and supplemental annuity are treated like noncontributory private and public service pensions for Federal income tax purposes. 

The entire amount of the vested dual benefit and the entire amount of the 

supplemental annuity are included as taxable earnings.
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110 How Tier 1 is Taxed

110.05 

Certain parts of a railroad retirement annuity are taxed in the same manner as 

social security benefits - the entire tier 1 portion payable for December 1983 

through November 1985; the social security equivalent benefit portion of tier 1 

(SSEB) payable for December 1985 and later; and the overall minimum (O/M) 

payable for December 1983 and later.

110.05.05 Tier 1/SSEB Portion of Tier 1

The tier 1/SSEB portion of tier 1 of a railroad retirement annuity is equivalent to 

what the annuitant would have received if the employee's railroad service had 

been covered under the social security system rather than the railroad retirement 

system. Therefore, tier 1/SSEB payments are taxed like social security benefits.

Payments of tier 1 benefits due for the period December 1983 through November 

1985 are taxable in the year in which paid, with an option available under certain 

conditions that these payments may be allocated by the annuitant to the year for 

which paid. SSEB payments due for the period December 1985 and later are 

taxable either in the year in which paid or in the year for which paid. Payments 

for months before December 1983 are not taxable, even if paid in 1984 or later.

110.05.10 Overall Minimum (O/M)

The overall minimum (O/M) guaranty is defined by the Internal Revenue Code 

Section 86(d) as being equivalent to what would be paid in social security 

benefits were the employee's railroad service covered under the social security 

system rather than the railroad retirement system. Therefore, payments made 

under the O/M for December 1983 and later, are taxed as social security 

benefits. Payments for months before December 1983 are not taxable, even if 

paid in 1984 or later.

110.10 Determining SSEB Amount

The SSEB provision of the "Consolidated Omnibus Budget Reconciliation Act of 

1985" modified the tax law retroactive to January 1, 1986, as applied to some tier 

1 benefits paid by the Railroad Retirement Board. The actual amount of the tier 

1 benefit component has not changed; only the manner by which tier 1 is taxed 

has changed. For tax purposes, an SSEB amount will be computed for every 

annuitant whose tier 1 would not equal the benefit the annuitant would be entitled 

to receive if the Social Security Administration administered payment under its 

rules. The remainder of the tier 1 computed is the non-social security equivalent 

benefit (NSSEB) (see TOM 115.05).
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110.10.05 SSEB Calculation Modular Program (SCAMP-ON-DEMAND)

The SSEB/NSSEB amounts are calculated by the SSEB Calculation Modular 

Program (SCAMP). This program is used for all SSEB calculations, whether 

automated or manual input is required (SCAMP-ON-DEMAND). Therefore, if the 

input is the same (DOB, type of annuity, ABD) the SSEB calculation will be the 

same. There is no actual manual calculation available. The basis for the SSEB 

calculations in SCAMP is the Social Security Administration (SSA) on-line 

program, used to calculate SS benefit amounts with slight changes made for RR 

Act provisions, systems, and records limitations.

SCAMP can be called automatically by various TAX programs to calculate 

SSEB/NSSEB amounts. SCAMP can also be called manually through the input 

of data from Form G-816, WORKSHEET FOR SCAMP ON DEMAND. TAX 

examiners complete this form when the correct tier 1 SSEB/NSSEB split is 

unknown. Entries on the worksheet are keyed by the examiner onto the SCAMPON-DEMAND screens. Both the input and output information appears on the 

screen and may be printed.

The SSEB/NSSEB amounts are calculated and are accurate only if the SCAMP 

input data from the database or examiner entry is accurate. The data that is 

used for the SSEB split calculation includes the following fields, as applicable. 

For the calculation to be correct, the data in these fields must be accurate:

RR Claim Number Payee Code

Prefix Beneficiary Symbol

Beneficiary DOB Beneficiary ABD

Employee DOB Employee ABD

Annuity Formula DF Onset Date

DF Termination Date Employee Type of Annuity

Beneficiary Type of Annuity Employee Type of Computation

Ben. Type of Computation Net Tier 1

SSEB PIA SSEB PIA Indicator

DRC Months SS Reduction Amount

Workers' Comp. Red. Amount O/M Rate
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Public Dis. Ben. Red. Amount RIB Limit/82 1/2% Amount

Own Emp. Ann. Red. Amount Public Service Pension Amount

Stat. Share/Red. for Max. Amt Sole Survivor Min. Guar. Amount

See Exhibit 1 for a display of Form G-816 and see Exhibit 2 for a display of the 

SCAMP-ON-DEMAND input/output screen.

110.10.10 SSEB By Definition/Categories of Cases

In certain cases, the annuitant is receiving the same amount in tier 1 benefits as 

he would receive at SSA. These cases have no deeming provisions applied to 

the tier 1 calculation and, therefore, their entire tier 1 is considered an SSEB. 

SCAMP does not calculate SSEBs in these cases, but makes them all SSEB by 

definition. These categories are:

EMPLOYEE

• EE with full age 65 annuity.

• Reduced age EE paid under 1981 Amendments.

• 60/30 EE paid under 1983 Amendments who are over age 62 and have a full 

age reduction (eligible 1-1-86 or later).

• EE with a period of disability (other than Medicare-only).

SPOUSE

• Spouse of full age 65 or reduced age 62 EE unless spouse is receiving an 

annuity under the 1937 or 1974 Act.

• Spouse of 60/30 EE paid under the 1983 Amendments; EE and spouse are 

over age 62 and have a full age reduction (eligible 1-1-86 or later).

• Spouse with minor child under age 16, or disabled child in care if EE has a 

period of disability or is over 62.

• Divorced spouse annuitant (unless EE is 60/30 annuitant under 1974 Act).

WIDOW(ER)

• Widow(er) with an OBD before 2-68 who was over age 65 on his/her OBD.

• Widow(er) with an OBD of 2-68 or later and were over age 62 on his/her 

OBD.
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• Disabled, divorced disabled, or remarried disabled widow(er) with a social 

security disability rating

• Remarried widow(er).

• Mothers and fathers (includes divorced and remarried).

OTHER SURVIVORS

• Parents over 62

• Minor child under age 16, or disabled child or grandchild.

• Students.

110.10.15 When Tier 1 is an All Non-Social Security Equivalent Benefit 

(NSSEB) Amount

Tier 1 is All NSSEB By Definition

Certain tier 1 amounts are not Social Security Equivalent Benefit (SSEB) 

payments because the Social Security Administration (SSA) would not pay them. 

The SSEB Calculation Modular Program (SCAMP) does not perform calculations 

for these tier 1 payments, but makes them SSEB = 0 by definition. 

Tier 1 is All NSSEB By Calculation

Certain tier 1 amounts are not SSEB payments because the tier 1 amounts 

exceed what SSA would pay. This occurs when tier 1 offset amounts exceed 

what would be the SSEB portion of the tier 1 payment.

In these instances, any tier 1 payments are all NSSEB amounts. Below are lists 

of all NSSEB tier 1 amounts by annuitant type.

Note: 

See TOM 110.10.15.05 for rules regarding: 

• payment of tier 1 and overall minimum (OM) formula accruals due for 

payment periods during which nonpayment under Section 202(x)1 of the 

Social Security Act applies, and

• payment of tier 1 and OM formula accruals due for payment periods prior to

periods during which nonpayment under Section 202(x)1 of the Social 

Security Act applies, but the individual is currently subject to those 

nonpayment provisions.

A. EMPLOYEE
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1. A 60/30 age and service employee under age 62.

2. A disabled employee under age 62 with no period of disability (disability 

freeze). 

3. An employee who does not have a SSA insured status, and, therefore, 

does not have a SSEB insured status.

4. An employee who is subject to nonpayment under Section 202(n) of the 

Social Security Act on his or her own wage record or as an auxiliary 

beneficiary on another individual’s wage record. Section 202(n) covers 

both wage earners who have been removed (deported) from the United 

States and any auxiliary beneficiaries entitled on the wage record of a 

wage earner who has been removed (deported) from the United States. If 

a wage earner is not payable under Section 202(n), auxiliary 

beneficiaries are also not payable. 

Note 1: Because auxiliary beneficiaries are not payable when the wage 

earner is not payable:

 Auxiliary beneficiaries’ tier 1 amounts should be paid as NSSEB.

 The employee and any auxiliary beneficiaries entitled on the 

employee’s wage record must be excluded from the overall minimum 

(OM) formula calculation.

5. An employee who is subject to nonpayment under Section 202(x)(1) of the 

Social Security Act. Section 202(x)(1) covers four general categories of 

wage earners who are certain convicted prisoners, inmates of publically 

funded institutions, fugitives, probationers, and parolees. It does not cover 

auxiliary beneficiaries entitled on the wage records of these wage earners. 

If a wage earner is not payable under Section 202(x)(1), auxiliary 

beneficiaries are payable without regard to the wage earner’s 

nonpayment status. 

Note 2: Because auxiliary beneficiaries are payable without regard to the 

wage earner’s nonpayment status: 

 Auxiliary beneficiaries’ tier 1 amounts should be paid as NSSEB, 

SSEB, or a SSEB/NSSEB split, whatever is appropriate.

 If the overall minimum (OM) formula applies with the employee 

excluded from the calculation, pay the OM as SSEB. 

See FOM 1.150.5, Prisoner Conviction Cases - General, for definitions of 

what constitutes a criminal offense, a conviction, incarceration, and other 

issues related to this subject. Wage earners subject to nonpayment under 
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Section 202(x)(1) of the Social Security Act are listed in items a. through 

d. below.

a. An employee who is incarcerated following conviction of a criminal 

offense.

b. An employee who is confined by court order in an institution at public 

expense because he or she is:

1) Found guilty of a criminal offense, but insane.

2) Found not guilty of a criminal offense by reason of insanity.

3) Incompetent to stand trial for a criminal offense.

4) Suffers from a mental disease, defect, of incompetence that 

prevents him or her from standing trial for a criminal offense.

5) A sexually dangerous person or predator who is not released from 

prison upon completion of his or her sentence for a criminal 

offense.

c. An employee who is fleeing to avoid prosecution, or is fleeing to avoid 

confinement after prosecution for a criminal offense.

d. An employee who is violating a condition of probation or parole 

imposed under Federal or State law.

Note 3: See TOM 110.10.15.05 for rules regarding the tax accounting of 

tier 1 and overall minimum (OM) formula accrual payments when 

nonpayment under section 202(x)(1) of the Social Security Act applies to 

the wage earner.

6. An employee whose tier 1 calculates to all NSSEB because of tier 1 offset 

amounts.

B. SPOUSE

1. A spouse of an age and service 60/30 employee under age 62.

2. A spouse of a disabled employee under age 62 with no period of disability

(disability freeze). 

3. A spouse under age 62 who does not have a minor child under age 16, or 

disabled child in his or her care, regardless of the employee’s age.
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4. A spouse with a minor child under age 18 in his or her care. The child 

must be at least age 16, but less than age 18, and not disabled. This is 

often referred to as a Nancy Johnson spouse. 

5. A spouse of an employee who does not have a SSA insured status, and, 

therefore, does not have a SSEB insured status.

6. A spouse who is subject to nonpayment under Section 202(n) of the 

Social Security Act on his or her own wage record or as an auxiliary 

beneficiary on another individual’s wage record. Section 202(n) covers 

both wage earners who have been removed (deported) from the United 

States and any auxiliary beneficiaries entitled on the wage record of a 

wage earner who has been removed (deported) from the United States. If 

a wage earner is not payable under Section 202(n), auxiliary 

beneficiaries are also not payable. 

Note 1: If the overall minimum (OM) formula applies with the spouse 

excluded from the calculation, pay the OM as SSEB.

7. A spouse who is subject to nonpayment under Section 202(x)(1) of the 

Social Security Act. Section 202(x)(1) covers the general categories of 

wage earners who are certain convicted prisoners, inmates of publically 

funded institutions, fugitives, probationers, and parolees. See the eight 

specific categories of wage earners shown below. It does not cover 

auxiliary beneficiaries entitled on the wage records of these wage earners. 

If a wage earner is not payable under Section 202(x)(1), auxiliary 

beneficiaries are payable without regard to the wage earner’s 

nonpayment status. 

Note 2: If the overall minimum (OM) formula applies with the spouse 

excluded from the calculation, pay the OM as SSEB.

See FOM 1.150.5, Prisoner Conviction Cases – General, for definitions of 

what constitutes a criminal offense, a conviction, incarceration, and other 

issues related to this subject. Wage earners subject to nonpayment under 

Section 202(x)(1) of the Social Security Act are listed in items a. through 

d. below.

a. A spouse who is incarcerated following conviction of a criminal offense. 

b. A spouse who is confined by court order in an institution at public 

expense because he or she is:

1) Found guilty of a criminal offense, but insane.

2) Found not guilty of a criminal offense by reason of insanity.

3) Incompetent to stand trial for a criminal offense.
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4) Suffers from a mental disease, defect, of incompetence that 

prevents him or her from standing trial for a criminal offense.

5) A sexually dangerous person or predator who is not released from 

prison upon completion of his or her sentence for a criminal 

offense.

c. A spouse who is fleeing to avoid prosecution, or is fleeing to avoid 

confinement after prosecution for a criminal offense.

d. A spouse who is violating a condition of probation or parole imposed 

under Federal or State law.

See TOM 110.10.15.05 for rules regarding the tax accounting of tier 1 and 

overall minimum (OM) formula accrual payments when nonpayment 

under section 202(x)(1) of the Social Security Act applies to the wage 

earner.

8. A spouse whose tier 1 calculates to all NSSEB because of tier 1 offset 

amounts.

C. WIDOW(ER)

1. A disabled widow(er) under age 60 with no social security disability rating.

2. A widow(er) with a minor child under age 18 in his or her care. The child 

must be at least age 16, but less than age 18, and not disabled. This is 

often referred to as a Nancy Johnson widow(er). 

3. A widow(er) of an employee who does not have a SSA insured status, 

and, therefore, does not have a SSEB insured status.

4. A widow(er) who is subject to nonpayment under Section 202(n) of the 

Social Security Act on his or her own wage record or as an auxiliary 

beneficiary on another individual’s wage record. Section 202(n) covers 

both wage earners who have been removed (deported) from the United 

States and any auxiliary beneficiaries entitled on the wage record of a 

wage earner who has been removed (deported) from the United States. If 

a wage earner is not payable under Section 202(n), auxiliary 

beneficiaries are also not payable. 

5. A widow(er) who is subject to nonpayment under Section 202(x)(1) of the 

Social Security Act. Section 202(x)(1) covers four general categories of 

wage earners who are certain convicted prisoners, inmates of publically 

funded institutions, fugitives, probationers, and parolees. It does not cover 

auxiliary beneficiaries entitled on the wage records of these wage earners. 

If a wage earner is not payable under Section 202(x)(1), auxiliary 
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beneficiaries are payable without regard to the wage earner’s 

nonpayment status. 

See FOM 1.150.5, Prisoner Conviction Cases – General, for definitions of 

what constitutes a criminal offense, a conviction, incarceration, and other 

issues related to this subject. Wage earners subject to nonpayment under 

Section 202(x)(1) of the Social Security Act are listed in items a. through 

d. below.

a. A widow(er) who is incarceratedfollowing conviction of a criminal 

offense. 

b. A widow(er) who is confined by court order in an institution at public 

expense because he or she is:

1) Found guilty of a criminal offense, but insane.

2) Found not guilty of a criminal offense by reason of insanity.

3) Incompetent to stand trial for a criminal offense.

4) Suffers from a mental disease, defect, of incompetence that 

prevents him or her from standing trial for a criminal offense.

5) A sexually dangerous person or predator who is not released from 

prison upon completion of his or her sentence for a criminal 

offense.

c. A widow(er) who is fleeing to avoid prosecution, or is fleeing to avoid 

confinement after prosecution for a criminal offense.

d. A widow(er) who is violating a condition of probation or parole imposed 

under Federal or State law.

Note: See TOM 110.10.15.05 for rules regarding the tax accounting of 

tier 1 accrual payments when nonpayment under section 202(x)(1) of the 

Social Security Act applies to the wage earner.

6. A widow(er) whose tier 1 calculates to all NSSEB because of tier 1 offset 

amounts.

D. OTHER SURVIVORS

1. Parents under age 62. 

2. A survivor of an employee who does not have a SSA insured status, and, 

therefore, does not have a SSEB insured status.
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3. A survivor who is subject to nonpayment under Section 202(n) of the 

Social Security Act on his or her own wage record or as an auxiliary 

beneficiary on another individual’s wage record. Section 202(n) covers 

both wage earners who have been removed (deported) from the United 

States and any auxiliary beneficiaries entitled on the wage record of a 

wage earner who has been removed (deported) from the United States. If 

a wage earner is not payable under Section 202(n), auxiliary 

beneficiaries are also not payable.

4. A survivor who is subject to nonpayment under Section 202(x)(1) of the 

Social Security Act. Section 202(x)(1) covers four general categories of 

wage earners who are certain convicted prisoners, inmates of publically 

funded institutions, fugitives, probationers, and parolees. It does not cover 

auxiliary beneficiaries entitled on the wage records of these wage earners. 

If a wage earner is not payable under Section 202(x)(1), auxiliary 

beneficiaries are payable without regard to the wage earner’s 

nonpayment status.

See FOM 1.150.5, Prisoner Conviction Cases - General, for definitions of 

what constitutes a criminal offense, a conviction, incarceration, and other 

issues related to this subject. Wage earners subject to nonpayment under 

Section 202(x)(1) of the Social Security Act are listed in items a. through 

d. below.

a. A survivor who is incarcerated following conviction of a criminal 

offense. 

b. A survivor who is confined by court order in an institution at public 

expense because he or she is:

1) Found guilty of a criminal offense, but insane.

2) Found not guilty of a criminal offense by reason of insanity.

3) Incompetent to stand trial for a criminal offense.

4) Suffers from a mental disease, defect, of incompetence that 

prevents him or her from standing trial for a criminal offense.

5) A sexually dangerous person or predator who is not released from 

prison upon completion of his or her sentence for a criminal 

offense.

c. A survivor who is fleeing to avoid prosecution, or is fleeing to avoid 

confinement after prosecution for a criminal offense.

d. A survivor who is violating a condition of probation or parole imposed 

under Federal or State law.
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Note: See TOM 110.10.15.05 for rules regarding the tax accounting of 

tier 1 accrual payments when nonpayment under section 202(x)(1) of the 

Social Security Act applies to the wage earner.

5. A survivor whose tier 1 calculates to all NSSEB because of tier 1 offset 

amounts.

110.10.15.05 Special Tax Accounting Rules For Tier 1 and Overall Minimum 

Formula Accrual Payments Due Individuals Subject to Nonpayment Under 

Section 202(x)(1) of the Social Security Act

1. Tier 1 Accrual Due For a Payment Period Within the Nonpayment Period

Any tier 1 accrual due for a period within the nonpayment period is payable

as NSSEB. 

2. Overall Minimum Formula Accrual Due For a Payment Period Within the 

Nonpayment Period

Any overall minimum (OM) formula accrual due for a payment period within

the nonpayment period may be payable if the OM still applies with the 

individual subject to nonpayment excluded from the OM calculation. If the 

OM still applies, the OM accrual is payable as SSEB. 

3. Tier 1 Accrual Due For a Payment Period Prior to the Nonpayment 

Period

Any tier 1 accrual due for a period prior to the nonpayment period should be 

paid without regard to the individual’s nonpayment status. That means the 

tier 1 accrual is payable as NSSEB, SSEB, or a SSEB/NSSEB split, 

whichever is applicable. 

4. Overall Minimum Formula Accrual Due For a Payment Period Prior to 

the Nonpayment Period

Any overall minimum (OM) formula accrual due for a period prior to the 

nonpayment period should be paid without regard to the individual’s 

nonpayment status. That means the individual subject to nonpayment should 

be included in the OM calculation. The OM accrual is payable as SSEB. 

110.10.20 SSEB/NSSEB Split/Categories of Cases

An SSEB is calculated for those annuitants whose tier 1 is not defined to be 

equal to the SSEB because the railroad retirement annuity has certain deeming 

provisions (deemed period of disability, deemed age 65) applied to the 

calculation of the tier 1 benefit. Types of cases with a calculated SSEB are:
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EMPLOYEE

• Reduced age EE paid under the 1937 or 1974 Act.

• 60/30 EE over age 62 paid under the 1974 Act or 1983 Amendments without 

a full age reduction (eligible before 1-1-86).

• Disabled EE over age 62 with no period of disability.

SPOUSE

• Spouse of reduced age EE paid under the 1937 or 1974 Act.

• Spouse of 60/30 EE over age 62 paid under the 1974 Act or 1983 

Amendments without a full age reduction (eligible before 1-1-86).

• Spouse of disabled EE over age 62 with no period of disability.

• Divorced spouse of 60/30 EE who retired under the 1974 Act.

• Reduced age spouse paid under the 1937 or 1974 Act and EE disabled with a 

period of disability.

• Spouse of full age EE.

WIDOW(ER)

• Disabled widow(er) paid under the 1937 Act. 

• Widow(er) with OBD before 2-68 who was under age 65 on OBD.

110.10.25 Default to All SSEB or All NSSEB

When SCAMP must compute an SSEB because the annuitant falls into one of 

the categories under 110.10.20, but all the information it needs to compute the

SSEB is not available, the SCAMP computation defaults to SSEB = Net Tier 1, or 

all SSEB. If the unavailable information is not a missing or invalid date of birth, 

and the date of birth indicates the annuitant is under age 62, the SCAMP 

computation defaults to all NSSEB.

When the missing information is available on the tax accounting system (TAS), 

SCAMP will pick up the information and recalculate the SSEB. This recalculation 

can occur on a mass adjustment, daily award activity, or on the monthly TAS 

recertification run.

When SCAMP processing produces a default to SSEB or a default to NSSEB, it 

also produces default codes each with a referral message. Up to five codes can 

be displayed on the SCAMP-ON-DEMAND output screen as DEFAULT REF-
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MSG 1, DEFAULT REF-MSG 2, DEFAULT REF-MSG 3, DEFAULT REF-MSG 4, 

and DEFAULT REF-MSG 5. See Exhibit 3 for a list of the default codes and their 

messages. 

110.15 SSEB Attainments

Annuitants who originally do not have an SSEB because they would not be 

entitled to an SS benefit if the employee's railroad service were covered under 

the social security system can subsequently become entitled to an SSEB when 

they attain their SSEB date of entitlement. The SSEB date of entitlement can be 

based on their attaining the age for SS benefit eligibility or being granted a 

disability rating under SS Act rules (period of disability in employee cases).

SSEB attainment processing is handled by the Tax Withholding Recertification 

Program (TAS RECERT), which is run once a month. This processing 

recomputes the annuitant's SSEB amount using SCAMP, recalculates tax 

withholding, and generates an RL-120 tax notice. SSEB attainment processing is 

restricted to records never handled by SCAMP, period of disability records, and 

annuitants who will attain their SSEB date of entitlement in the current 

processing month.

Explanations of the SSEB attainment categories follow.

110.15.05 Age

An annuitant attains his(her) SSEB date of entitlement the month (s)he would be 

eligible for an SS benefit for the whole month were the employee's railroad 

service covered under the social security system. This would be the month in 

which the annuitant attains the applicable age for his/her annuity as explained in 

sections 110.10.10 - 110.10.20.

TAS contains the annuitant's SSEB date of entitlement based on the type of 

annuity and automatically computes the SSEB at that time. A TL-123 or TL-124 

notice will be sent to the annuitants 2-3 months in advance to advise them of the 

upcoming change in their taxable amount. See Exhibit 4 for a display of the TL123 notice. See Exhibit 5 for a display of the TL-124 notice.

110.15.10 Period of Disability Granted

An employee or widow(er) annuitant can also attain an SSEB date of entitlement 

after five full months of being disabled under Social Security Act rules (a period 

of disability for employee annuitants or a disability rating for widow(er)s). This 

attainment of a period of disability can occur prior to the SSEB age attainment or 

after the SSEB age attainment. In cases where the period of disability is 

effective after age 62, the SSEB date of entitlement in TAS is still based on their 

ages, but their date of attainment of a period of disability is five full months after 
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the waiting period begins. At that time, the tier 1 amount becomes all SSEB by 

definition.

For employee annuitants, there are three types of period of disability, but only 

two of them are considered a period of disability for SSEB taxation purposes: a 

regular period of disability and an unilateral period of disability (where a joint 

period of disability is required but SSA has either not rated the employee yet or 

has rated the employee not disabled). A Medicare only period of disability is not 

considered a period of disability for SSEB purposes because the employee is not 

insured for an SS benefit and, therefore, wouldn't be eligible for a benefit under 

the social security system.

Form Letter RL-210, the AB-32 appeals backed paper for period of disability 

denials, and the period of disability denial code paragraphs explain the effect that 

a period of disability has on how railroad retirement benefits are taxed.

110.15.15 Development of Period of Disability After Age 65

Because the granting of a period of disability changes the taxability of tier 1, a 

period of disability that would decrease the employee's tax liability for tax years 

1986 and later may be to the employee's tax advantage, even if the employee is 

over age 65 when the period of disability is granted. However, since there are 

other categories of cases where the tier 1 is all SSEB, it is not necessary to 

develop for a period of disability for tax purposes in all situations. The types of 

cases where it may be to the employee's tax advantage to have a period of 

disability effective date prior to age 65 are those cases listed under section 

110.10.15 (all NSSEB), and section 110.10.20 (SSEB/NSSEB split). The types 

of cases where it would have no effect on the employee's tax liability to develop 

for a period of disability when the employee is age 65 or older, are listed under 

section 110.10.10 (all SSEB).

115 Taxed Like a Contributory Private and Public Service 

Pension

115.05 Taxed Like a Contributory Private and Public Service Pension

Contributory private and public service pensions are taxed differently from social 

security benefits. Contributory pensions are only taxed on the part of the pension 

that exceeds the amount of contributions made by the wage earner. Whether the 

entire pension is excluded from taxation until the contributions are recovered or 

only a part of the pension is excluded from taxation until contributions are 

recovered depends on which recovery tax rule applies, Three-Year Rule or 

General Rule. The non-social security equivalent benefit (NSSEB) and the tier 2 

of a railroad retirement annuity are considered contributory private or public 

service pensions for tax purposes.
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The employee contribution amount is explained under section 115.10; the ThreeYear Rule is explained under section 115.20; and the General Rule is explained 

under section 115.25.

Non-SSEB Portion of 

Tier 1

The non-social security equivalent benefit (NSSEB) 

portion of tier 1 of a railroad retirement annuity is the 

amount of tier 1 that exceeds the SSEB portion of tier 

1. The NSSEB can equal the tier 1 amount, be less 

than the tier 1 amount, or be equal to zero. NSSEB 

payments for December 1985, and later, made in 

January 1, 1986, or later, are taxable as explained 

above.

Calculation The NSSEB is calculated by subtracting the SSEB 

portion of tier 1 as calculated by SCAMP from the net 

tier 1 amount. The result is the NSSEB portion of tier 

1. An NSSEB is calculated for those annuitants as 

explained under section 110.10.20.

Defined Categories (all 

NSSEB)

In certain cases, the annuitant is receiving a tier 1 

amount but would not be eligible for SS benefits 

because (s)he does not meet the requirements for an 

age or disability benefit under the social security 

system. NSSEB, in these cases, is defined to be the 

entire tier 1. These categories are listed under 

section 110.10.15.

Attainments (period of 

disability terminations)

It is possible for annuitants to not have an NSSEB 

(everything is SSEB) and then to become entitled to

an NSSEB (either part NSSEB or all NSSEB). This 

can happen if a period of disability terminates and the 

employee is either; 1) under age 62 (it becomes all 

NSSEB); or 2) the employee is age 62-64 (it becomes 

part NSSEB). Although this is not a true attainment, it 

is shown here for informational purposes.

Tier 2 The entire tier 2 of a railroad retirement annuity is 

considered a contributory private or public service 

pension for tax purposes. Tier 2 payments for 

December 1983 and later, paid January 1, 1984 or 

later, are taxable as explained above. Payments for 

months before December 1983 are not taxable, even 

if paid in 1984 or later.
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115.10 How Employee Contribution Amount Is Computed

The amount of the employee contributions is the amount the employee paid in 

Railroad Retirement Act (RRA) taxes exceeding the amount that would have 

been paid in FICA taxes under SSA. The employee contribution (EEC) amount 

is computed from the day the employee started working in the railroad industry.

The EEC formula is provided for information only. Examiners should secure the 

EEC as explained in RCM Chapter 7.4, Appendix A, or access the Contribution 

and Recovered Data (CONTRI/RECV) screen of the general TAX screens. Refer 

to TOM 3105.25.

Standard Formula

The EEC is computed by applying the annual RR tax rate and the annual SS tax 

rate to each year's compensation, up to the respective maximums. The 

difference between these two figures is the EEC for the year. The total EEC 

amount is determined by totaling the EEC for all years.

The standard formula cannot be used for the following periods:

• 1937 – 1950

• 1959

• 1965

• 10/73 - 9/81

• 10/81 – Present

The EEC in these periods is explained below:

Earnings in 1937 - 1950 period

The total maximum creditable earnings in this period are identified. The total 

earnings in the period 1937-1950 are broken down using the yearly maximum of 

$3,600.00 as follows:

Step Action

1 The total earnings are divided by $3,600.00 to determine the number 

of years (up to 14) to which earnings should be attributed.
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2 The earnings for that number of years are attributed at $3,600.00 per 

year beginning with 1950 and going backwards.

3 The last year will be a partial earnings amount less than $3,600.00.

As long as $3,600.00 is attributed to a year in this period, the additional RRA 

taxes paid for that year based on earnings of $3,600.00 will be considered the 

employee contribution for that year. In 1950, this is $171.00; in 1949, $186.00, 

etc. As the earnings in this period are broken down, earnings in the final year 

counted are less than $3,600.00. Whatever amount is left is attributed to that 

year. The additional RRA tax for that year is based on the actual earnings 

attributed, rather than $3,600.00.

1959 period

In 1959, the earnings base and RR tax rate changed. There is no access to a 

monthly breakdown, so if the employee did not work all 12 months, we don't 

know in which months the $1,750.00 earnings base and 6.25% tax rate applies, 

and in which months the $2,880.00 earnings base and 2.75& tax rate applies. 

An average tax rate is used to determine the EEC. The 1959 tier compensation 

is multiplied by the factor .040578 to determine the EEC for 1959. The 1959 

gross amount is not used and the RR maximum creditable compensation of 

$4,550.00 cannot be exceeded. The factor (.040578) is determined as follows:

Step Action

1 TOTAL RR TAX BASED ON MAX IN 1959 / TOTAL RR MAX 

EARNINGS IN 1959

$298.38 / $4,550.00 = .065578

2 TOTAL SS TAX BASED ON MAX IN 1959 / TOTAL SS MAX 

EARNINGS IN 1959

$113.75 / $4,550.00 = .025

3 Step 1 - Step 2

065578 - .025000

1965 period

The RR tax rate changed in October 1965, from 8.125% to 7.125%. The months 

of service are identified in the record for 1965. If the employee has less than 12 
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months of service in 1965, the compensation per month is averaged by dividing 

the compensation by the months of service. Which months the employee worked 

are determined, and the appropriate tax rate is applied to the average earnings 

for those months. The SS maximum is not exceeded when determining the SS 

tax amount.

EXAMPLE: The employee had 10 months in 1965 and earned $3,588.79; he 

worked March through December. The average monthly earnings are $358.88.

For the period 3/65 - 9/65:

COMP RR TAX 

RATE

RR TAX SS TAX 

RATE

SS TAX EEC

2,512.16 8.125% 204.11 3.625% 91.07 113.04

For the period 10/65 - 12/65:

COMP RR TAX 

RATE

RR TAX SS TAX 

RATE

SS TAX EEC

1,076.65 7.125% 76.71 3.625% 39.03 37.68

1965 EEC = 150.72

10/73 - 9/81 period

The RR and SS tax rates and creditable compensation maximums are the same 

for this period. Therefore, the employee contribution amount, for each year in 

this period, is zero.

10/81 - current period

The tier 1 tax rate and creditable compensation maximum are equivalent to the 

SS tax rate and compensation maximum for this period, as during the period 

10/73 through 9/81. However the employee contribution amount for each year in 

this period equals a 2% tax on the tier 2 compensation. The tier 1 calculation is 

eliminated.

To determine the compensation for the periods 1/73 - 9/73 and 10/81 - 12/81, 

when an employee has less than 12 months in either of these years, the earnings 

per month are averaged and allocated to the actual months worked, as described 

in the section for 1965.

The employee contribution amount was incorrectly computed for 1988 based on 

an incorrect tier 2 tax rate of 4.25% that was used in the computation. The 
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correct tier 2 tax rate for 1988 is 4.9%. All tax records in which the employee 

contribution amount included 1988 compensation were corrected in 1990.

SUMMARY

The following table summarizes the EEC calculation. The compensation 

amounts shown are the maximum amounts. All the dollar amounts entered are 

for demonstration purposes only. The percentages will be used for every 

employee.

YEAR RR TAX SS TAX EMPLOYEE

COMP X RATE = RR TAX COMP X RATE = SS TAX CONTRIBUTION

1937 3600 2.75 99.00 3000 1.0% 30.00 69.00

1938 3600 2.75 99.00 3000 1.0% 30.00 69.00

1939 3600 2.75 99.00 3000 1.0% 30.00 69.00

1940 3600 3.00 108.00 3000 1.0% 30.00 78.00

1941 3600 3.00 108.00 3000 1.0% 0.00 78.00

1942 3600 3.00 108.00 3000 1.0% 30.00 78.00

1943 3600 3.25 117.00 3000 1.0% 30.00 87.00

1944 3600 3.25 117.00 3000 1.0% 30.00 87.00

1945 3600 3.25 117.00 3000 1.0% 30.00 87.00

1946 3600 3.50 126.00 3000 1.0% 30.00 96.00

1947 3600 5.75 207.00 3000 1.0% 30.00 177.00

1948 3600 5.75 207.00 3000 1.0% 30.00 177.00

1949 3600 6.00 216.00 3000 1.0% 30.00 186.00

1950 3600 6.00 216.00 3000 1.5% 45.00 171.00

1951 3600 6.00 216.00 3600 1.5% 54.00 162.00

1952 3600 6.25 225.00 3600 1.5% 54.00 171.00

1953 3600 6.25 225.00 3600 1.5% 54.00 171.00

1954 3900 6.25 243.75 3600 2.0% 72.00 171.75
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1955 4200 6.25 262.50 4200 2.0% 84.00 178.50

1956 4200 6.25 262.50 4200 2.0% 84.00 178.50

1957 4200 6.25 262.50 4200 2.25% 94.50 168.00

1958 4200 6.25 262.50 4200 2.25% 94.50 168.00

1959 Multiply comp. (up to 4550) by .040578 to get 1959 EEC 184.63

1960 4800 6.75 324.00 4800 3.0% 144.00 180.00

1961 4800 6.75 324.00 4800 3.0% 144.00 180.00

1962 4800 7.25 348.00 4800 3.125% 150.00 198.00

1963 4900 7.25 355.25 4800 3.625% 174.00 181.25

1964 5400 7.25 391.50 4800 3.625% 174.00 217.50

1/65-

9/65

4050 8.125 329.06 3600 3.625% 130.50 198.56

10/65-

12/65

1350 7.125 96.19 1200 3.625% 43.50 52.69

1966 6600 7.95 524.70 6600 4.2% 277.20 247.50

1967 6600 8.65 570.90 6600 4.4% 290.40 280.50

1968 7800 8.90 694.20 7800 4.4% 343.20 351.00

1969 7800 9.55 744.90 7800 4.8% 374.40 370.50

1970 7800 9.55 744.90 7800 4.8% 374.40 370.50

1971 7800 9.95 776.10 7800 5.2% 405.60 370.50

1972 9000 9.95 895.50 9000 5.2% 468.00 427.50

1/73 -

9/73

8100 7.125 577.12 8100 3.625% 293.63 283.49

10/73-

12/73

2700 5.85 157.95 2700 5.85% 157.95 0

1974 13200 5.85 772.20 13200 5.85% 772.20 0

1975 14100 5.85 824.85 14100 5.85% 824.85 0

1976 15300 5.85 895.05 15300 5.85% 895.05 0
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1977 16500 5.85 965.25 16500 5.85% 965.25 0

1978 17700 6.05 1070.85 17700 6.05% 1070.85 0

1979 22900 6.13 1403.77 22900 6.13% 1403.77 0

1980 25900 6.13 1587.67 25900 6.13% 1587.67 0

1/81-

9/81

22275 7.125 1587.09 22275 3.625% 807.47 779.62

10/81 

-

12/81

T1 7425 6.65 493.76 7425 6.65% 493.76 0

T2 5550 2.00 111.00 - - - 111.00

1982 T1 

32400

6.70 2170.80 32400 6.7% 2170.80 0

T2 

24300

2.00 486.00 - - - 486.00

1983 T1 

35700

6.70 2391.90 35700 6.7% 2391.90 0

T2 

26700

2.00 534.00 - - - 534.00

1984 T1 

37800

*7.00 2646.00 37800 7.0% 2646.00 0

T2 

28200

2.75 775.50 - - - 775.50

1985 T1 

39600

7.05 2791.80 39600 7.05% 2791.80 0

T2 

29700

3.50 1039.50 - - - 1039.50

1986 T1 

42000

7.15 3003.00 42000 7.15% 3003.00 0

T2 

31500

4.25 1338.75 - - - 1338.75

1987 T1 

43800

7.15 3131.70 43800 7.15% 3131.70 0

T2 

32700

4.25 1389.75 - - - 1389.75
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1988 T1 

45000

7.51 3379.50 45000 7.51% 3379.50 0

T2 

33600

4.90 1646.40 - - - 1646.40

1989 T1 

48000

7.51 3604.80 48000 7.51% 3604.80 0

T2 

35700

4.90 1749.30 - - - 1749.30

1990 T1 

51300

7.65 3924.45 51300 7.65% 3924.45 0

T2 

38100

4.90 1866.90 - - - 1866.90

1991 T1 

53400

7.65 4085.10 53400 7.65% 4085.10 0

T2 

39600

4.90 1940.40 - - - 1940.40

Total Through 1991: 20628.99

*Employees received a credit of 0.3% in 1984.

115.15 How Employee Contributions Are Recovered

As explained in section 115.05, contributory pensions are only taxed on the part 

of the pension remaining after the contributions have been recovered. The 

method used to determine how contributions are recovered depends upon which 

recovery rule applies, Three-Year Rule or General Rule. 

Under the Three-Year Rule, any NSSEB/tier 2 benefits paid under a railroad 

account number to the employee, spouse, and/or survivor(s) from their annuity 

beginning date are applied towards recovery of the employee contributions. No 

part of the NSSEB/tier 2 benefit is taxable until the total of all NSSEB/tier 2 

benefits paid under the employee's account equals or exceeds the amount of the 

employee's contributions. These contributions should be recovered within a 36-

month period.

Under the General Rule, part of the NSSEB/tier 2 benefit is nontaxable and the 

remainder is taxable immediately from the annuity beginning date. Only the 

nontaxable amount paid to employees and survivors goes toward recovery of the 

employee contributions. Spouses do not have a nontaxable amount and do not 

recover employee contributions.
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[Effective for tax year 1992, contribution recovery processing, as well as General 

Rule computations, will be eliminated. Tax statements released in January 1993 

for the 1992 tax year will not contain contribution recovery data.]

115.20 Three-Year Rule

The Three-Year Rule provision of the Internal Revenue Code applies for 

annuities beginning before July 2, 1986. By definition the Three-Year Rule is 

applied if the employee contributions can be recovered from NSSEB/tier 2 

benefits paid under the employee's claim number within a 36-month period, or 

three years.

On September 6, 1992 and October 30, 1992, all cases that were unrecovered 

under the Three-Year Rule (002), or whose tax rule code was undetermined 

(000) were converted to a tax rule code of General Rule, Unrecovered - 

Temporary Determination (015).

115.20.05 How Annuitants Were Affected

Generally, annuities with beginning dates prior to July 2, 1986, are covered under 

the Three-Year Rule and those with beginning dates after July 1, 1986, are 

covered under the General Rule. Based on an administrative decision, however, 

the Tax Accounting System (TAS) did not process cases under the General Rule 

until the Three-Year Rule was eliminated effective July 2, 1986. Since TAS was 

not able to implement the General Rule provision timely, the Three-Year Rule 

computations were applied to all annuitants on the rolls until that time, unless an 

inquiry was made regarding General Rule taxes for 1986. In such case, a 

manual corrected statement was issued for 1986 reporting tax information under 

the General Rule.

115.20.10 NSSEB/Tier 2 All Nontaxable Until Contributions Recovered

Under the Three-Year Rule, an annuitant can receive NSSEB/tier 2 benefits taxfree until the employee's contributions have been recovered. Until the 

contributions are recovered, no part of the NSSEB/tier 2 benefit payable to any 

family member is taxable.

115.20.15 NSSEB/Tier 2 Taxable When Contributions Recovered

Under the Three-Year Rule, NSSEB/tier 2 benefits become fully taxable only 

after the NSSEB/tier 2 benefits paid under the employee's claim number exceed 

the amount of the employee contribution.

NOTE: The Internal Revenue Service (IRS) states in Publication 575 that 1989 

was the last year amounts could be excluded on tax returns under the ThreeYear Rule. IRS also advised that these excluded amounts should be removed 
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from tax statements. Therefore, effective in 1992, TAS converted all remaining 

unrecovered Three-Year Rule cases to General Rule.

115.25 General Rule

The General Rule provision of the Internal Revenue Code repealed the ThreeYear Rule for annuities beginning after July 1, 1986. The General Rule applies 

to these annuities and allows for the taxation of part of the NSSEB/tier 2 benefit 

from the annuity beginning date. The remainder is tax free from the annuity 

beginning date.

Beginning with tax year 1992, the Railroad Retirement Board no longer tracks or 

reports taxable and nontaxable amounts under the General Rule. Tax 

statements released in January of 1993 for the 1992 tax year will not contain 

taxable amounts.

115.25.05 Annuitants Affected

Generally, annuities with beginning dates after July 1, 1986, are covered under 

the General Rule. However, for multiple annuitants paid on the same employee 

record, the annuity beginning date for the first retirement and survivor annuitant 

paid determines the applicable tax rule for each retirement or survivor annuitant. 

See section 115.25.20 . 

Annuitants with an ABD/OBD of July 2, 1986, and later, who have NSSEB/tier 2 

benefits are affected by the General Rule. The only exceptions to this are 

explained in section 115.25.20. To correctly apply the General Rule to 

annuitants paid in 1986 and 1987, a General Rule mass adjustment was run after 

the December 1987 cost-of-living operation to determine the nontaxable 

NSSEB/tier 2 amounts and to correct the taxable NSSEB/tier 2 amounts for 

these annuitants under General Rule computations for 1987. See TOM 400 for a 

description of the General Rule mass adjustment.

General Rule computations for new annuitants coming on the rolls after the 

December 1987 mass adjustment were implemented in 1988.

There are two categories of annuitants covered under the General Rule. The first 

category includes those with ABD/OBDs of July 2, 1986, through December 31, 

1986. These are generally referred to as 1986 General Rule cases. These 

annuitants are entitled to a permanent nontaxable NSSEB/tier 2 amount, which 

remains static for the life of the annuitant. The second category includes those 

annuitants with ABD/OBDs after December 31, 1986. These are generally 

referred to as 1987 General Rule cases. These individuals are entitled to a 

"temporary" nontaxable NSSEB/tier 2 amount until the employee contributions 

have been fully recovered.
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115.25.10 A Portion of NSSEB/Tier 2 Nontaxable From ABD

Under the General Rule, part of the tier 2/NSSEB is nontaxable and the 

remainder is taxable immediately from the annuity beginning date. The 

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

(the employee contributions). The nontaxable amount is computed based on the 

amount of the employee 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.

As explained in section 115.25.05, the nontaxable amount is permanent and 

remains static for the life of the annuitant for 1986 General Rule cases. This 

means that recovery of the employee contributions is immaterial. The 

nontaxable amount continues even if the contributions have been recovered.

However, for 1987 General Rule cases, although the computation of the 

nontaxable amount is static, the total nontaxable amount received is limited to 

the amount of the employee's unrecovered contributions. Once the total of all 

nontaxable NSSEB/tier 2 payments made to the employee and/or survivors 

exceed the amount of the employee contributions, the NSSEB/tier 2 components 

become fully taxable. In some cases, the contributions may be recovered before 

the annuitant dies, because he or she has outlived his or her life expectancy.

See section 115.25.25 for an explanation of how the nontaxable amount is 

calculated.

115.25.15 Spouse Annuity is All Taxable From the ABD

The NSSEB/tier 2 components of a spouse annuity are considered fully taxable 

from the annuity beginning date under the General Rule. Therefore, no part of 

the spouse's NSSEB/tier 2 (or divorced spouse's NSSEB) can be used toward 

recovery of the employee contributions.

115.25.20 Determining Applicable Tax Rule

The initial determining factor used in assessing which tax rule to apply - General 

Rule or Three-Year Rule - is the ABD/OBD. As long as the ABD/OBD is before 

July 2, 1986, the Three-Year Rule will apply. [The exceptions are the old ThreeYear Rule unrecovered cases that converted to General Rule in 1992.]

However, there are certain situations where the ABD/OBD is not the determining 

factor in applying the appropriate tax rule:

• Retirement cases - If an employee is a Three-Year Rule case and the spouse 

comes on the rolls with an ABD of August 1, 1986, the Three Year Rule will 

also be applied to the spouse even though her ABD is after July 1, 1986. The 

NSSEB/tier 2 payments made to both the employee and the spouse will be 
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applied toward recovery of the contributions and will not become taxable until 

the contributions are recovered.

• Survivor cases - If the employee was under the Three-Year Rule, the survivor 

can be under the General rule if the OBD is July 2, 1986, or later. Likewise, if 

the employee was a 1986 ABD General Rule case, the survivor can be a 

1987 ABD General Rule case. For survivors, the tax rule determination and 

General Rule calculation are re-done based on the survivor's OBD, his or her 

age at the OBD, and the amount of any unrecovered contributions.

For example, in the case of a spouse to widow conversion, a new tax rule 

determination is made for the widow based on her new OBD. If she had 

previously been a spouse under the Three-Year Rule, she can now be under 

the General Rule if her OBD is July 2, 1986, or later. If the employee had 

been a 1986 ABD General Rule case and the widow had been a General 

Rule spouse with a fully taxable NSSEB/tier 2, she can now be a 1987 OBD 

General Rule case, providing her OBD is January 1, 1987, or later. In such 

cases, if the employee's contributions have not yet been recovered, the 

widow will be entitled to a nontaxable amount of her NSSEB/tier 2 payments 

until the contributions have been fully recovered. Thereafter, her NSSEB/tier 

2 will become fully taxable

However, in the case of a survivor family group or split-family group, if the first 

annuitant paid is a widow covered under the Three-Year Rule, and a child 

becomes entitled later with an OBD in 1987, the child will also be considered 

a Three-Year Rule case as long as the widow is still in current payment status 

or in suspense. (Annuitants in suspense are still considered on the rolls and, 

therefore, still entitled.) The entire NSSEB/tier 2 payments received by both 

the widow and the child will be applied toward recovery of the contributions 

and will not become taxable until the contributions are recovered.

Likewise, in a survivor family group or split-family group, if the first annuitant 

on the rolls is covered under the General Rule with an OBD of August 1, 

1986, and is still entitled when a subsequent annuitant comes on the rolls 

later, the new annuitant will also be covered under the General Rule as an 

individual with an OBD in 1986, even though the subsequent survivor's actual 

OBD may be January 1, 1987 or later. The computation of the permanent 

nontaxable NSSEB/tier 2 would not change, and recovery of the employee 

contributions does not have to be considered for all survivors on the rolls.

• Existence of Continuous Entitlement - A distinction should be made here 

between a situation where there is continuous entitlement and one in which 

there is no continuous entitlement. Applying the appropriate tax rule when 

there is new entitlement and there are multiple annuitants involved, depends 

on whether or not the annuitant(s) from the previous entitlement is/are still in 

current pay status, or in suspense, at the OBD of the newly entitled annuitant. 

(Annuitants in suspense are still considered on the rolls and, therefore, still 
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entitled.) This new annuitant could either be entitled for the first time or could 

now be entitled again after having been previously terminated. As long as 

there is one annuitant still currently entitled at the OBD of the new 

entitlement, the tax rule for the new annuitant will be the same as the 

annuitants who are still currently entitled. If all annuitants from a previous 

entitlement have terminated, and a new annuitant comes on the rolls 

subsequently, a new tax rule determination will be made.

The same is true in a retirement case, where an employee's disability annuity 

terminates because he has recovered and he later becomes entitled to a new 

annuity based on age and service. If his disability annuity was considered 

under the Three-Year Rule and his age and service annuity begins after July 

1, 1986, the tax rule can be recalculated now to be under the General Rule.

In summary, whichever tax rule is applied to the first retirement or survivor 

annuitant on the rolls, the same tax rule is applied to any subsequent 

annuitants in the same family or split-family group later coming on the rolls, as 

long as there is continuous entitlement of one or more annuitants. If there is 

no continuous entitlement, a new tax rule determination will be made.

• Change in ABD/OBD - There are also situations where an annuitant can 

change from a Three-Year Rule case to a General Rule case or vice versa. 

This can happen if there is a change in ABD/OBD. This involves a new 

entitlement or change in entitlement; therefore, a recalculation of the tax rule 

is allowed. Any benefits not due from the "erroneous" entitlement must be 

repaid and any contributions recovered will be added back into the 

contribution amount to be recovered. In retirement cases, the change in tax 

rule will be effective for both the employee and spouse. In survivor cases, all 

annuitants paid under the claim number are affected. A change in tax rule for 

survivors can only happen if the first annuitant's OBD changes.

In the situation where an annuitant's tax rule changed during the tax year, two 

annual statements will be released, one showing Three-Year Rule information 

and the other General Rule information. The most common situations are 

spouse to widow conversion cases, where the widow(er) could have been a 

spouse under the Three-Year Rule and then converts to a widow(er) under 

the General Rule. This could also apply to employees who were under the 

Three-Year Rule for part of the year and become General Rule upon a new 

entitlement for the rest of the year.

For those annuitants still in partial payment status at the end of the year, their 

annuity statements will reflect the tax rule determined based on the partial 

ABD. If the partial ABD determined the tax rule to be the General Rule, but 

once they are paid final in the next tax year the final ABD is determined to be 

prior to July 2, 1986, the tax rule must be changed to Three-Year Rule and a 

corrected statement for the previous tax year should be released.
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115.25.25 Calculating the General Rule Exclusion Amount

The following describes how the General Rule exclusion amount, or nontaxable 

amount, is calculated:

• How the Family Nontaxable Amount is Determined - The nontaxable amount 

is based on several factors:

First Monthly Rate - This is the NSSEB/tier 2 after deductions for actuarial 

adjustment, waiver, or work deductions paid on the first final recurring rate to 

the employee or all first paid survivors.

Expected Return - This is the total NSSEB/tier 2 (based on the first final 

monthly rate) expected to be paid to the employee or all first paid survivors 

over the life of the annuity.

Exclusion Factor - This is the result of dividing the amount of the unrecovered 

contributions as of the ABD/OBD by the expected return.

Family Monthly Nontaxable Amount - This is the first monthly rate multiplied 

by the exclusion factor. This is also called the tax-free amount or the 

exclusion amount.

• How Each Annuitant's Monthly Nontaxable Amount is Determined --

Retirement - The family monthly nontaxable amount applies only to the 

employee NSSEB/tier 2.

Survivor - The family monthly nontaxable amount is distributed among all 

survivor annuitants by proration; it is redistributed if a new survivor annuitant 

comes on the rolls or a survivor is terminated.

• How to Compute the Nontaxable Amount in an Accrual - The computation of 

the nontaxable portion of an accrual will depend on what type of payment 

resulted in the accrual:

Recertifications - If the payment is a regular recertification increasing rates 

previously paid (the award covers a period in which the annuitant already 

received paid amounts), the entire accrual is considered taxable. This is 

because the monthly nontaxable amount originally computed must remain 

static, whether the annuity rate subsequently goes up or down. Therefore, 

the amount the accrual represents is the taxable portion of the annuity, which 

can change with any annuity adjustment. Accruals from recertifications where 

a portion of the accrual was used to recover an overpayment are treated in 

the same manner. The entire NSSEB/tier 2 accrual is taxable.
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For partial to final awards, the monthly nontaxable amount is first recalculated 

based on final rate information and then multiplied by the number of months 

covered in the accrual going back to the ABD. All the nontaxable amounts 

considered while in partial payment status are subtracted from this 

nontaxable amount computed. The result is the nontaxable portion of the 

accrual.

In zero accrual recertification situations, where the accrual was withheld to 

offset an overpayment, the withheld accrual, which normally would have been 

paid out, is considered entirely taxable. If no accrual would be paid because 

the recertified rates are lower than the previously paid rates, no 

nontaxable/taxable amounts are computed. 

Initial Awards/Reinstatements - To determine the nontaxable portion of an 

accrual resulting from an initial award or a reinstatement award, the number 

of months covered in the accrual period is first determined. That number is 

multiplied by the monthly nontaxable amount originally computed. The result 

is the nontaxable portion of the accrual.

Reinstatement/Recertifications - To determine the nontaxable portion of an 

accrual resulting from a reinstatement/recertification award, the net paid 

amount of the accrual is first determined. The exclusion percentage is then 

applied to that amount. The exclusion percentage was originally computed 

when the annuitant was paid final. The net paid amount of the accrual is 

determined by taking the sum of the accrual NSSEB/tier 2 paid amounts (after 

1983) minus any actuarial adjustments nd annuity waiver. The resulting 

nontaxable amount cannot exceed the amount of the accrual.

Spouse to Widow Conversions - The accrual from a spouse to widow 

conversion is not treated like an initial award accrual but is similar. To 

determine the nontaxable portion of the accrual from a spouse to widow 

award, the number of months since the widow(er)'s OBD is computed. That 

amount is multiplied by the new recurring NSSEB/tier 2 nontaxable amount 

computed for the widow(er). (This nontaxable amount is based on the 

amount of unrecovered contributions as of the spouse to widow award.) The 

result is the nontaxable portion of the accrual. This handling applies to 

General Rule widow(er)s who were previously General Rule spouses.

The spouse to widow accrual for General Rule widow(er)s who were 

previously Three-Year Rule spouses with unrecovered employee 

contributions are handled differently. This accrual is considered fully taxable. 

No nontaxable amounts are computed (these widow(er)s would be receiving 

a larger nontaxable amount than to which they are entitled). Their 

NSSEB/tier 2 was nontaxable during the interim widow period when a portion 

of it should have been taxable as a General Rule widow(er). If nontaxable 

NSSEB/ tier 2 amounts were computed on the spouse to widow accrual 

equal to the number of months in the accrual times the widow(er)'s monthly 
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nontaxable NSSEB/tier 2 amount, the widow(er) would be receiving too much 

in nontaxable amounts and too little in net taxable amounts. Therefore, the 

entire accrual is considered taxable. Although the taxable accrual may be 

overstated, the widow(er)'s first regular monthly payment and later payments 

will be correctly split between a taxable and nontaxable portion.

A General Rule widow(er) who was previously a Three-Year Rule spouse with 

the employee contribution fully recovered has a fully taxable spouse to widow 

accrual since the NSSEB/tier 2 was fully taxable while a spouse and is 

NOTE: For those General Rule widow(er)s who were previously General 

Rule spouses, it may be possible for a negative net taxable NSSEB/tier 2 

amount to be computed if the nontaxable NSSEB/tier 2 amount is accrual. If 

so, the negative amount may or may not balance out by subsequent net 

taxable amounts during the rest of the tax year, depending on whether or not 

entitlement continues. If entitlement ceases while the negative net taxable 

amount exists, there is nothing taxable for the year.

115.25.30 Explanation of Form G-310

General Rule calculations are automatically performed by certain TAX programs. 

The General Rule exclusion amount, or monthly nontaxable amount, can also be 

computed manually on Form G-310, WORKSHEET TO ESTIMATE GENERAL 

RULE NONTAXABLE AMOUNT. A more detailed explanation of the use of Form 

G-310 is in TOM 3200.

Form G-310 is used by TAX examiners when preparing manual original or 

corrected tax statements. Common situations when Form G-310 is used are in 

partial to final awards, spouse to widow conversions, and survivor family group 

situations, where payees drop in and out, causing redistribution of the monthly 

nontaxable amount.

115.25.35 When to Recompute the Exclusion Amount

Under the General Rule, there are only a few situations when the nontaxable 

amount should be recomputed:

Partial to final cases - When an annuity is recertified from partial to final payment 

status, the nontaxable portion of the NSSEB/tier 2 is recomputed based on the 

final monthly NSSEB/tier 2 component(s).

If the annuity is still in partial payment status at the end of the year and has been 

determined to be covered under the General Rule, the annuitant's annual 

statement will reflect taxable amounts based on the partial ABD and partial rate 

information.
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Initial final awards - Once the tax rule determination has been made and the 

General Rule calculations of the nontaxable amount have been made, there is no 

need for any recomputation of the nontaxable amount unless the ABD/OBD 

changes.

Return to Railroad Service - No Recomputation - If a General Rule employee 

returns to railroad service, there is no new tax rule determination or recalculation 

of nontaxable amounts when he becomes re- entitled. Since the employee is 

only in suspense while he returns to railroad service, he does not get a new ABD 

when he ceases work. Therefore, the nontaxable amount calculated originally at 

his ABD remains the same after he becomes re-entitled to a railroad annuity. 

However, any additional contributions the employee accumulated during his 

return to railroad service are added to any unrecovered contributions, the total of 

which must be recovered before the NSSEB/tier 2 become fully taxable (in cases 

where the ABD is January 1, 1987, or later).

Annuity Rate Adjustments - No Recomputation - If the NSSEB/tier 2 increases 

due to cost-of-living or other annuity adjustments, or if it decreases due to SSA 

entitlement, age 62 attainment, period of disability attainment, vested dual benefit 

attainment, or date of birth change, etc., the nontaxable portion of the NSSEB/tier 

2 is not recomputed.

Change in Survivor Family Group Composition - In the case of a survivor family 

group or split-family group, where annuitants drop in and out, the family's total 

monthly nontaxable amount computed at the initial entitlement never gets 

recalculated upon a new entitlement as long as one or more annuitants are still in 

current pay status at that time. A family's total monthly nontaxable amount gets 

prorated among all the beneficiaries in current pay status by a ratio of:

annuitant's monthly NSSEB/tier 2

family's total monthly NSSEB/tier 2

Therefore, if one drops out or a new annuitant comes on the rolls, the family's 

total monthly nontaxable amount simply gets re-prorated according to the ratio 

based on the new NSSEB/tier 2 rates (if recomputed) among the annuitants.

If a new annuitant comes on the rolls and there are no others in current pay 

status under the same claim number, a new tax rule determination is made and a 

new nontaxable amount (based on the amount of unrecovered contributions) is 

recomputed.
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115.30 Simplified General Rule

In 1988, IRS introduced a new method of computing taxable/nontaxable amounts 

for General Rule cases, called the Simplified General Rule.

The Simplified General Rule does not change any of the taxation concepts that 

apply under the General Rule. The same concepts also apply under the 

Simplified 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.

115.30.05 When the Simplified General Rule May Be Applied

General Rule annuitants (ABD 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 annuity beginning date. 

Young widow(ers), minor children, and students who have fixed periods of 

entitlement cannot use the Simplified General Rule.

If chosen as the method of computation, the Simplified General Rule may be 

applied effective with tax year 1988. Taxpayers may also change from the 

General Rule to the Simplified General Rule (or the other way around) for prior 

years by filing amended returns for all their tax years beginning with the year in 

which the first annuity payment was received. Generally, the change may be 

retroactive to 3 prior years. If a change is made, the same method must be used 

for all tax years unless the taxpayer chooses the Simplified General Rule for 

1988 and later years but not for 1986 or 1987. In such case, if the annuity 

beginning date is after July 1, 1986, and before January 1, 1988, the taxpayer 

can start to use the Simplified General Rule in 1988 without amending the 1986 

or 1987 returns. The taxpayer has the option to amend both the 1986 and 1987 

returns to apply the Simplified General Rule if he chooses to apply it to 1988. 

However, he cannot amend 1987 without also amending 1986 (providing the first 

annuity was received in 1986).

115.30.10 How to Calculate the Taxable/Nontaxable Amount

IRS has devised a worksheet for General Rule taxpayers to use in computing 

their taxable/nontaxable pension or annuity amounts under the Simplified 

General Rule. This WORKSHEET FOR SIMPLIFIED GENERAL RULE appears 

in IRS Publication 575, Pension and Annuity Income (Including Simplified 

General Rule). Railroad retirement annuitants may use the worksheet to compute 

their taxable/ nontaxable NSSEB/tier 2 amounts. Items 4, 14, and 15 on Form 

RRB-1099-R (W-2P) provide the annuitant with the information he or she needs 

to complete the worksheet. (However, effective with tax statements for the 1992 

tax year, these items will no longer be provided on the statement, except for the 

contributory amount paid item. The statements will no longer report taxable 
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contributory amounts. Annuitants must begin calculating the taxable and tax-free 

portion of their NSSEB-tier 2 payments under either the General Rule or the 

Simplified General Rule, whichever method they prefer.)

TAS was not changed to compute the General Rule under the simplified method 

since the Simplified General Rule calculation is an option for the taxpayer. Any 

inquiries received on Simplified General Rule computations should be referred to 

the IRS.

115.35 When Employee Contributions Are Recovered

Contribution recovered amounts and contribution recovery dates are 

automatically computed by various TAX programs. Contribution recovery can 

also be computed manually by TAX examiners on Form G-1009, WORKSHEET 

TO DETERMINE THE EMPLOYEE CONTRIBUTION RECOVERED AMOUNT.

[Effective for tax year 1992, contribution recovery processing, as well as General 

Rule computations, will be eliminated. Tax statements computed for the 1992 

tax year and on, will not include contribution recovery data.]

115.35.05 Explanation of Form G-1009

Form G-1009, WORKSHEET TO DETERMINE THE EMPLOYEE 

CONTRIBUTION RECOVERED AMOUNT is used by TAX examiners when 

preparing manual tax statements and when correcting the claim tax record of the 

taxation database, where contribution recovery data reside.

In Three-Year Rule cases, Form G-1009 is used when the employee 

contributions cannot be deemed to be recovered. That is, if the annuitant came 

on the rolls after December 1983, a determination must be made whether the 

employee contributions have been recovered. The actual amount of all 

NSSEB/tier 2 benefits paid under the employee's claim number must be added 

up and compared to the employee contribution amount.

In General Rule cases, only the nontaxable portions of the NSSEB/ tier 2 paid to 

employees and survivors should be included in these computations. The 

difference between the contribution amount and the total of contributions 

recovered to date is then divided by the total NSSEB/tier 2 amount payable (or 

paid) to all family members. The result is the number of months it would take 

before contributions are recovered and the NSSEB/tier 2 become fully taxable (in 

Three-Year cases and 1987 General Rule cases). The contribution recovery 

date is determined based on the computed number of months from the 

ABD/OBD.
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115.35.10 TAX Daily Database Update

The TAX daily database update programs perform contribution recovery 

processing. When daily activity (awards, suspensions, terminations, etc.) is 

updated to the taxation database by the daily database update program 

(DELTA), contribution recovery data is calculated and updated in the claim tax 

record of the database. DELTA will also calculate recovered amounts and 

contribution recovery dates for Three-Year Rule cases based on the activity 

being updated and from the last date contribution recovery data was updated. 

GRACE is the program that performs contribution recovery processing for 

General Rule cases. Net taxable and nontaxable NSSEB/tier 2 amounts are also 

calculated and posted in the recurring and nonrecurring rate records created 

from the activities being updated. If recovery occurs, the update programs will 

adjust and update tax rule codes as well as net taxable/nontaxable amounts. 

See TOM 600 for more detailed explanations of the TAX daily database update 

programs.

115.35.15 TAX Monthly Database Update

Once a month, certain TAX programs request employee contribution amount 

data from the bureau of research and employment accounts for cases where the 

contribution amount is missing and updates this data to the taxation database. 

As part of the update process, contribution recovery is performed. Recovered 

amounts and recovery dates are calculated and posted to the claim tax record 

with net taxable and nontaxable NSSEB/tier 2 amounts derived and posted on a 

new recurring rate record opened.

The monthly TAS recertification (TAS Recert) run also can affect contribution 

recovery processing, but only as it goes through the daily check writing job 

stream and through DELTA/GRACE for update to the taxation database. See 

TOM 600 for a description of the monthly database update program and TAS 

RECERT.

115.35.20 TAX Year-End Update

In addition to the monthly request, there is a "year-end" request for employee 

contribution amount data from the bureau of research and employment accounts. 

This is not actually performed at year end, but it is usually performed once a year 

around August or September after the Railroad Retirement Board receives lag 

data from the railroads. Contribution recovery calculations and updates are 

performed in a manner similar to the monthly update.

The year-end statement operation also performs contribution recovery 

calculations, although it will not update them to the TAX database. The year-end 

calculations are performed because the total contribution recovered amount 

(through the current tax year), in addition to the employee contribution amount, 
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are reported on the annual tax statement to the annuitant. Therefore, the 

calculation is done for statement purposes only and only if contribution recovered 

amounts have not already been updated through the end of the tax year. If 

recovery occurs within the tax year, it will be reflected on the statement.

115.35.25 TAX Mass Adjustment Update

TAX has a number of mass adjustment update programs that will call contribution 

recovery processing. The mass adjustment programs update the following to the 

taxation database: Cost-of-Living, RAIL, AERO, vested dual benefit cutback and 

restore, and SUP ANN cutback and restore adjustments. Contribution recovered 

amounts and contribution recovery dates are calculated and updated to the claim 

tax record. New recurring and/or nonrecurring rate records are created with net 

taxable and nontaxable NSSEB/tier 2 amounts posted accordingly. If recovery 

occurs, tax rule codes will also be adjusted and updated.

115.35.30 TAX Manual/On-Line Correction Programs

The G-1102 manual correction system for nonrecurring rate record corrections 

also calls contribution recovery processing under both the Three-Year Rule and 

General Rule. In addition to posting a new nonrecurring rate record based on 

data manually input by TAX examiners, the claim tax record may also be 

adjusted for contribution recovery. If recovery occurs, a new recurring rate 

record may also be opened, reflecting a new tax rule code, and new net taxable 

and nontaxable NSSEB/tier 2 amounts. The new tax rule codes will also be 

reflected in the claim tax record and annuitant tax record.

The claim tax record on-line correction system, TAXCOR, calls contribution 

recovery processing only under the Three-Year Rule. Contribution recovery 

processing can be triggered by examiner on-line corrections/entries to the claim 

tax record. Recovered amounts, recovery dates, tax rules, and net 

taxable/nontaxable NSSEB/tier 2 amounts may be adjusted and updated in the 

claim tax record, annuitant tax record, recurring rate record, or nonrecurring rate 

record. If recovery under the Three-Year Rule occurs, all database records and 

fields will be adjusted and updated.

120 Taxed Like A Non-Contrib Private & Public Service Pension

120.05 Taxed Like A Non-Contributory Private And Public Service Pension

Non-contributory private and public service pensions are taxed differently than 

social security benefits and contributory private pensions. Since non-contributory 

private and public service pensions are not based on contributions by the wage 

earner, there are no contributions to recover before the non-contributory private 

and public service pension is taxable. Therefore, these types of pensions are 

taxable from the beginning date. The vested dual benefit and supplemental 
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annuity components of a railroad retirement annuity are taxable as noncontributory private or public service pensions.

120.05.05 Vested Dual Benefit

The entire vested dual benefit (VDB) component of a railroad retirement annuity 

due for the period December 1983 and later is taxable as a non- contributory 

private or public service pension amount from the annuitant's VDB date of 

entitlement. The VDB is taxable in the year in which paid.

120.05.10 Supplemental Annuity

The entire supplemental annuity (SUP ANN) of a railroad retirement annuity due 

for the period November 1966 and later is taxable as a [non- contributory] private 

or public service pension amount from the annuitant's SUP ANN date of 

entitlement. The SUP ANN is taxable in the year in which paid.

125 Residual Lump Sum and Lump Death Payment

125.05 Residual Lump Sum (RLS) Not Taxable

The residual lump sum (RLS) guarantees the railroad employee and his survivors 

to receive as much in regular retirement and survivor benefits as the employee 

paid in railroad retirement taxes for the years 1937 through 1974. The RLS can 

be payable if no one is entitled to a monthly benefit in the month the employee 

died. If there is future entitlement, those rights may be waived. The RLS can be 

paid to a beneficiary designated by the employee. If there is no one designated 

by the employee, the RLS can also be paid to children, or to the deceased 

employee's estate.

For Federal income tax purposes, the RLS cannot be taxable until the employee 

contributions have been recovered. However, since the RLS represents a refund 

of the railroad retirement taxes withheld from the employee's pay prior to 1975 

less any benefits (NSSEB,tier 2) already paid on the employee's account, it 

should never be taxable because it represents a return on the employee's 

contributions. Therefore, the RLS is a nontaxable payment.

125.10 Lump Sum Death Payment (LSDP) Not Taxable

The lump sum death payment (LSDP) is payable only if no one is entitled to a 

monthly benefit in the month the employee dies. The LSDP cannot be 

designated. It is payable to a widow(er) or payer of burial expenses. It can also 

be assigned to a funeral home by the person who assumes responsibility for 

paying the burial expenses.

For Federal income tax purposes, the LSDP is a nontaxable payment.
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130 How States Tax Railroad Annuities

Section 14 of the Railroad Retirement Act (45 U.S.C. §231m) provides that no 

annuity or supplemental annuity shall be subject to any tax under any state law.

135 Crediting Payments and Repayments

135.05 

Paid and repaid amounts made in the specific tax year are accumulated and 

reported on the annual tax statements.

135.10 Paid Amounts (PAIDS)

The following sections discuss how paid amounts are credited for each 

component of a railroad retirement annuity.

135.10.05 SSEB/OM Paids

SSEB/OM paid amounts consist of any SSEB/OM amounts paid or accreted to 

the annuitant's tax liability in the period of January 1984 or later. (Although 

SSEB was not effective until January 1986 the entire tier 1 payment from 

January 1984 through December 1985 are treated like SSEB for tax purposes.) 

SSEB payments are also accounted for by the taxable year for which they are 

paid. The annuitant can choose to apply the payments for prior taxable years to 

the year they were actually paid or to the years for which they were paid. (It may 

be more advantageous to apply the payment to the year for which the accrual 

was due if the annuitant's income was lower for that year.) Any payments for the 

period prior to January 1984 are not taxable. SSEB/OM paid amounts are before: 

• Legal process (garnishment or assignment) offset;

• Workers' Compensation offset;

• Full or partial withholding;

• Accrual recovery for any RR/SUP ANN/SS/RUIA overpayment;

• SMI premium deduction;

• Tax withholding.

But after:

• Actuarial adjustment;

• Waiver;
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• Work deductions.

135.10.10 NSSEB/Tier 2 Paids

NSSEB and tier 2 paid amounts consist of any NSSEB tier 2 amounts paid or 

accreted to the annuitant's tax liability in the specific tax year, regardless of what 

tax year the payment was for. NSSEB/tier 2 paid amounts are before:

• Legal process (garnishment or assignment) offset;

• Full or partial withholding;

• Accrual recovery for any RR/SUP ANN/SS/RUIA overpayment;

• SMI premium deduction;

• Tax withholding.

But after:

• Actuarial adjustment;

• Waiver;

• Work deductions;

• Workers' Compensation offset to the NSSEB only.

135.10.15 Vested Dual Benefit Paids

Vested dual benefit (VDB) paid amounts consist of any VDB amounts paid or 

accreted to the annuitant's tax liability in the specific tax year, regardless of what 

tax year the payment was for. VDB paid amounts are before:

• Legal process (garnishment or assignment) offset;

• Full or partial withholding;

• Accrual recovery for any RR/SUP ANN/SS/RUIA overpayment;

• SMI premium deduction;

• Tax withholding.

But after:

• Actuarial adjustment;
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• Waiver;

• Work deductions;

• Cutback.

VDB Cutback - As stated above, the amount of VDB after cutback is taxable. 

Therefore, during the period in which the VDB was cut back, the amount that was 

actually paid the annuitant was considered taxable, not the amount that was cut 

back 

VDB Restoration - When the VDB cutback amount is restored to the annuitant, 

the cutback amount will be taxable in the year it is paid, not in the year it was 

due.

135.10.20 Supplemental Annuity Paids

Supplemental annuity (SUP ANN) paid amounts consist of any SUP ANN 

amounts paid or accreted to the annuitant's tax liability in the specific tax year, 

regardless of what tax year the payment was paid for. SUP ANN paid amounts 

are before:

• Accrual recovery for any RR/SUP ANN/RUIA overpayments; 

• Tax withholding.

But after:

• Waiver;

• Cutback.

SUP ANN Cutback - As stated above, the amount of SUP ANN after cutback is 

taxable. Therefore, during the period in which the SUP ANN was cut back, the 

amount that was actually paid the annuitant was considered taxable, not the 

amount that was cut back.

SUP ANN Restoration - When the SUP ANN cutback amount is restored to the 

annuitant, the cutback amount will be taxable in the year it is paid, not in the year 

it was due.

135.15 Repaid Amounts (REPAIDS)

The following sections discuss how repaid amounts are credited for each 

component of a railroad retirement annuity.
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135.15.05 SSEB/OM Repaids

SSEB/OM repaid amounts consist of any SSEB/OM amounts repaid, returned, or 

recovered for payments issued prior to death. This includes payments issued in 

a period or for a period prior to December 1983. SSEB/OM repaid amounts are 

attributable to the year in which received. Internal Revenue Code allows 

nontaxable SSEB/OM repaid amounts to be offset against taxable SSEB/OM 

paid amounts. Therefore, a net SSEB/OM amount can be a negative amount. 

This negative amount can be used to offset a positive amount on any other Form 

RRB-1099 or SSA-1099 the annuitant may receive. Generally, a repayment is 

prorated into the taxable tier components unless the overpayment was for a 

specific component (e.g., entitlement to an SS benefit caused an SSEB 

overpayment).

135.15.10 NSSEB/Tier 2 Repaids Under the Three-Year Rule

• Three-Year Rule recovered - NSSEB/tier 2 repaid amounts consist of any 

NSSEB/tier 2 amounts repaid, returned, or recovered for the period 

December 1983 or later and issued for a period after the employee 

contributions are recovered and issued prior to death. NSSEB/tier 2 

repayments are creditable for tax purposes only if the original payment was 

reported as taxable when paid.

Only repayments that are attributable to a specific tax year can be credited to 

that tax year (the year in which the overpayment was incurred or in which a 

returned payment was issued). Repayments made in any tax year may 

reduce that tax year's tax liability only to the extent that the current year's 

payments were "overpaid." Unlike SSEB, the net taxable amount for any year 

cannot be less than zero, regardless of the amount of repayment. The 

annuitant may need to amend a prior year income tax return to take into 

account a "credit" for a repayment attributable to an overpayment in a prior 

tax year. If the total NSSEB/tier 2 repayment in that year exceeds $3,000, a 

"claim of right" may be exercised by the taxpayer (see IRS Publication 575 for 

details).

For the annuitant to determine what credit to take for the repaid amount, he 

should contact the Railroad Retirement Board to find out what years were 

involved in the overpayment.

Returned payments that were issued in the same tax year in which they were 

returned are not considered repaids, but are subtracted from the paids for that 

tax year. 

• Three-Year Rule not recovered - NSSEB/tier 2 repaid amounts cannot be 

credited if the employee contributions have not been recovered. Any 

NSSEB/tier 2 payments made before employee contributions are recovered 
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are considered nontaxable. Therefore, if nontaxable amounts are repaid, 

returned, or recovered, no repaid credit is given for tax purposes.

135.15.15 NSSEB/Tier 2 Repaids Under the General Rule

Under the General Rule, NSSEB/tier 2 repaid amounts are broken down between 

taxable and nontaxable repaids. Under the Three-Year Rule, the entire 

NSSEB/tier 2 repaid amount attributed to a period for December 1983 or later, 

issued for a period after contributions are recovered, and issued prior to death, is 

considered a taxable repaid amount and, therefore, creditable for tax purposes. 

The only nontaxable repaid amounts under the Three-Year Rule are attributed to 

pre-1984 periods.

TAS determines taxable/nontaxable NSSEB/tier 2 repaid amounts under the 

General Rule as follows:

• Returned checks - When a payment issued for a period prior to death is 

returned, repaids are broken down by tiers according to the payment structure 

in force at the time the payment went out. If the NSSEB/tier 2 of the original 

payment is broken down between net taxable and nontaxable paid amounts, 

the NSSEB/tier 2 repaid amounts for the returned check are broken down in 

the same net taxable and nontaxable repaid amounts.

• Full withholding - When payments are in suspense to recover an 

overpayment by full withholding, TAS posts corresponding paid and repaid 

amounts for every month the annuity is in suspense. If the NSSEB/tier 2 paid 

amount is broken down between net taxable and nontaxable amounts, the 

NSSEB/tier 2 repaid amount is also broken down between the same net 

taxable and nontaxable amounts.

• Partial withholding - When partial withholding is in force to recover an 

overpayment, if the tiers to which the overpayment is attributed are not 

available through manual award form entry, TAS prorates the repaid amount 

to the current tier rates in effect. If the NSSEB/tier 2 paid amount is broken 

down between net taxable and nontaxable amounts, then the NSSEB/tier 2 

repaid amount is also broken down between the same net taxable and 

nontaxable amounts.

• Recovery from accrual - For overpayment recoveries from accruals, the net 

taxable and nontaxable repaid amounts are determined in the same manner 

as overpayment recoveries through partial withholding. That is, the total 

NSSEB/tier 2 repaid amount will be prorated between net taxable and 

nontaxable NSSEB/tier 2 based on the current recurring NSSEB/tier 2 rate.

• Cash refund - Currently, cash refunds are entered into TAS through the 

manual correction system by TAX examiners. By accessing payment 

information through the TAX screens, the amount of the cash refund may be 
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matched up with a posted payment. In that case, the cash refund is posted 

as a repaid amount based on the tier structure of that payment. If the 

payment was broken down between net taxable and nontaxable NSSEB/tier 2 

paid amounts, then the NSSEB/tier 2 repaid amounts are also broken down 

between the same net taxable and nontaxable amounts.

• If the amount of the cash refund cannot be matched with a payment through 

accessing the TAX screens, the examiners request the folders for the 

overpayment information so that the correct posting of net taxable and 

nontaxable repaid amounts can be performed.

135.15.20 NSSEB/Tier 2 Repaids Under 1986 General Rule

NSSEB/tier 2 repaid amounts consist of the taxable NSSEB/tier 2 amounts 

repaid, returned, or recovered for annuitants covered under the General Rule. 

The payments must also have been issued prior to death. For tax purposes, 

credit for repayment is not given for the nontaxable portion of the payment.

Since a portion of NSSEB/tier 2 payments is taxable right away from the 

ABD/OBD with a permanent nontaxable portion for 1986 General Rule 

annuitants, and contribution recovery is not a factor in determining 

taxable/nontaxable payments, any NSSEB/tier 2 payment repaid, returned, or 

recovered is credited, generally, in the amount that it was taxable.

Only repayments that are attributable to a specific tax year can be credited to 

that tax year (the year in which the overpayment was incurred or in which a 

returned payment was issued). Repayments made in any tax year may reduce 

that tax year's tax liability only to the extent that the current year's payments were 

"overpaid." Unlike SSEB, the net taxable amount for any year cannot be less 

than zero, regardless of the amount of repayment. The annuitant may need to 

amend a prior year income tax return to take into account a "credit" for a 

repayment attributable to an overpayment in a prior tax year. If the total 

NSSEB/tier 2 repayment in that year exceeds $3,000, a "claim of right" may be 

exercised by the taxpayer (see IRS Publication 575 for details).

For the annuitant to determine what credit to take for the repaid amount, he 

should contact the Railroad Retirement Board to find out what years were 

involved in the overpayment.

Returned payments that were issued in the same tax year in which they were 

returned are not considered repaids, but are subtracted from the paids for that 

tax year.

135.15.25 NSSEB/Tier 2 Repaids Under 1987 General Rule

• 1987 General Rule recovered - NSSEB/tier 2 repaid amounts consist of the 

taxable NSSEB/tier 2 amounts repaid, returned, or recovered for annuitants 
TOM 100

TOM 100 Tax Computations Revised Dec 23, 2022 Page 44 of 49

covered under the General Rule. The payments must also have been issued 

prior to death. For tax purposes, credit for repayment is not given for the 

nontaxable portion of the payment.

Since the entire NSSEB/tier 2 becomes taxable after the employee 

contributions have been recovered for 1987 General Rule annuitants, any 

NSSEB/tier 2 repayment attributed to a period after contributions have been 

recovered is fully creditable. No split between taxable and nontaxable 

repaids needs to be computed.

• 1987 General Rule not recovered - NSSEB/tier 2 repaid amounts consist of 

the taxable NSSEB/tier 2 amounts repaid, returned, or recovered for 

annuitants covered under the General Rule. The payments must also have 

been issued prior to death. For tax purposes, credit for repayment is not 

given for the nontaxable portion of the payment.

Since a portion of NSSEB/tier 2 payments is taxable right away from the 

ABD/OBD, any NSSEB/tier 2 payment repaid, returned, or recovered is 

credited, generally, in the amount that it was taxable, if contributions have not 

been recovered.

All other discussion regarding the treatment of NSSEB/tier 2 repaid amounts 

are the same as explained under section 135.15.10.

135.15.30 Vested Dual Benefit Repaids

December 1983 or later and issued prior to death. Repayment of a VDB 

payment is creditable for tax purposes if the original payment was reported as 

taxable when paid. 

Repayments made in any tax year may reduce that tax year's tax liability only to 

the extent that the current year's payments were "overpaid." Unlike SSEB, the 

net taxable amount for any year cannot be less than zero, regardless of the 

amount of repayment. The annuitant may need to amend a prior income tax 

return to take into account a "credit" for a repayment attributable to an 

overpayment in a prior tax year.

For the annuitant to determine what credit to take for the repaid amount, he 

should contact the Railroad Retirement Board to find out what years were 

involved in the overpayment. 

Returned payments that were issued in the same tax year in which they were 

returned will not be considered repaids, but will be subtracted from the paids for 

that tax year.
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135.15.35 Supplemental Annuity Repaids

Supplemental annuity (SUP ANN) repaid amounts consist of SUP ANN amounts 

repaid, returned, or recovered for the period November 1966 and later and 

issued prior to death. Since supplemental annuities have been taxable since 

inception, all supplemental annuity repayments are creditable for tax purposes.

SUP ANN repayments are treated in the same way for tax purposes as VDB 

repayments explained in section 135.15.30.

135.20 Negative Paid Amounts

Return or recovery of taxable and certain nontaxable payments to or by the RRB 

usually requires credit of either a repaid amount or a negative paid amount to the 

annuitant's record for tax accounting purposes. Repaid amounts are discussed 

under section 135.15. Negative paid amounts are discussed below.

135.20.05 SSEB/OM Negative Paids

An SSEB/OM negative paid amount is posted to TAS for return or recovery of 

any SSEB/OM payment issued for the period December 1983 or later and issued 

after death. Any negative paid amount is always posted to the account of the 

deceased, even if a cross-beneficiary recovery was involved. Any negative paid 

assessment is limited to benefits that were taxable when paid.

135.20.10 NSSEB/Tier 2 Negative Paids

An NSSEB/tier 2 negative paid amount is posted to TAS for:

• Return or recovery of any NSSEB/tier 2 payment issued for the period 

December 1983 or later and issued after death; 

• Return or recovery of any NSSEB/tier 2 payment issued prior to death if

employee contributions have not been recovered for Three-Year Rule cases, 

and including payments issued in a period or for a period prior to December 

1983; and

• Return or recovery of any NSSEB/tier 2 payment issued after death, split 

between net taxable and nontaxable amounts for General Rule cases, either 

in accordance with the original payment's split or the current payment's split.

Any negative paid amount caused by issue after death is always posted to the 

account of the deceased, even if a cross-beneficiary recovery was involved. The 

negative paid amount for payments issued prior to death is always posted to the 

annuitant's account from whom recovery was affected.
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135.20.15 Vested Dual Benefit Negative Paids

A vested dual benefit (VDB) negative paid amount is posted to TAS for return or 

recovery of any VDB payment issued for the period December 1983 or later and

issued after death. Any negative paid amount is always posted to the account of 

the deceased, even if a cross-beneficiary recovery was involved. Any negative 

paid assessment is limited to benefits that were reported taxable when paid.

135.20.20 Supplemental Annuity Negative Paids

A supplemental annuity (SUP ANN) negative paid amount is posted to TAS for 

return or recovery of any SUP ANN payment issued after death. This includes 

payments issued from November 1966 and on, since the supplemental annuity 

has always been taxable. Any negative paid amount is always credited to the 

account of the deceased, even if a cross-beneficiary recovery was involved. Any 

negative paid assessment is limited to benefits that were reported taxable when 

paid.

SCAMP On Demand Default Referral Messages

MESSAGE 

NUMBER

0100 ANNUITANT'S DATE OF BIRTH NOT VALID FOR SSEB SCAMP 

PROCESSING.

0101 ANNUITY/ORIGINAL BEGINNING DATE NOT VALID FOR SSEB 

SCAMP PROCESSING.

0102 ANNUITANT'S TYPE OF ANNUITY CODE NOT VALID FOR 

SSEB SCAMP PROCESSING.

0103 BENEFICIARY SYMBOL NOT VALID FOR SSEB SCAMP 

PROCESSING.

0104 DISABILITY FREEZE/ONSET DATE NOT VALID FOR SSEB 

SCAMP PROCESSING.

0105 TIER 1 BEGINNING DATE NOT VALID FOR SSEB SCAMP

PROCESSING.

0106 EMPLOYEE'S DATE OF BIRTH NOT VALID FOR SSEB SCAMP 

PROCESSING.
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0107 RATE EFFECTIVE DATE NOT VALID FOR SSEB SCAMP 

PROCESSING.

0108 ACCOUNTING/VOUCHER DATE NOT VALID FOR SSEB 

SCAMP PROCESSING.

0109 TYPE OF COMPUTATION CODE NOT VALID FOR SSEB 

SCAMP PROCESSING.

0110 ANNUITY FORMULA CODE NOT VALID FOR SSEB SCAMP 

PROCESSING.

0111 INSURED STATUS CODE NOT VALID FOR SSEB SCAMP 

PROCESSING.

0112 EMPLOYEE'S TYPE OF ANNUITY NOT VALID FOR SSEB 

SCAMP PROCESSING.

0113 EMPLOYEE'S TYPE OF COMPUTATION NOT VALID FOR SSEB 

SCAMP PROCESSING.

0114 NET TIER 1 OR OM RATE NOT VALID FOR SSEB SCAMP 

PROCESSING.

0115 SSEB PIA NOT VALID FOR SSEB SCAMP PROCESSING.

0116 SOCIAL SECURITY BENEFIT AMOUNT NOT VALID FOR SSEB 

SCAMP PROCESSING.

0117 WORKER'S COMPENSATION REDUCTION AMOUNT NOT 

VALID FOR SSEB SCAMP PROCESSING.

0118 PUBLIC DISABILITY BENEFIT REDUCTION AMOUNT NOT 

VALID FOR SSEB SCAMP PROCESSING.

0119 DELAYED RETIREMENT CREDIT MONTHS NOT VALID FOR 

SSEB SCAMP PROCESSING.

0120 PUBLIC SERVICE PENSION AMOUNT NOT VALID FOR SSEB 

SCAMP PROCESSING.

0121 ANNUITANT'S OWN EMPLOYEE ANNUITY REDUCTION 

AMOUNT NOT VALID FOR SSEB SCAMP PROCESSING.

0122 STATUTORY SHARE/REDUCTION MAXIMUM RATE NOT 

VALID FOR SSEB SCAMP PROCESSING.
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0123 SOLE SURVIVOR MINIMUM GUARANTY AMOUNT NOT VALID 

FOR SSEB SCAMP PROCESSING.

0124 RIB LIMIT/82 1/2% AMOUNT NOT VALID FOR SSEB SCAMP 

PROCESSING.

0125 DISABILITY FREEZE TERMINATION DATE NOT VALID FOR 

SSEB SCAMP PROCESSING.

0126 RETIREMENT/SURVIVOR INDICATOR NOT VALID FOR SSEB 

SCAMP PROCESSING.

0127 PIA INDICATOR INVALID FOR SSEB SCAMP PROCESSING.

0128 OM FORMULA BEING PAID; EE LESS THAN 62, NO DF, DATA 

NOT CONSISTENT FOR SCAMP PROCESSING.

0129 ATTAINMENT CASE BYPASSED (USED BY MECHANICAL 

SYSTEM ONLY - NOT USED BY SCAMP-ON-DEMAND).

0130 EE/SP INDICATOR INVALID FOR RETIREMENT PROCESSING.

I-100 TAX COMPUTATIONS I-100

EXHIBIT 6 G-310 EXHIBIT 6

I-100 TAX COMPUTATIONS I-100

EXHIBIT 6 G-310 EXHIBIT 6

I-100 TAX COMPUTATIONS I-100

EXHIBIT 7 RL-515 EXHIBIT 7

I-100 TAX COMPUTATIONS I-100

EXHIBIT 8 G-1009 EXHIBIT 8

SUMMARY

The following table summarizes the EEC calculation. The compensation amounts 

shown are the maximum amounts. All the dollar amounts entered are for 

demonstration purposes only. The percentages will be used for every employee.