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1130.5 Effect Of Earnings

1130.5.1 General

The overall minimum (O/M) guaranty is a provision of the Railroad Retirement (RR) Act 

that guarantees the employee and his family to receive the same amount of benefits 

that would be payable under the Social Security (SS) Act if the employee's railroad 

earnings were SS Act wages. The O/M applies if benefits payable under the O/M 

formula exceed the benefits payable to the employee and spouse under the railroad 

retirement formula.

A work deduction insured status under the RR Act is not required for work deductions to 

apply. Annuities under the O/M are withheld if the employee or auxiliary beneficiary 

(spouse, divorced spouse, or non-disabled child) has earnings over the annual exempt 

amount. The withholding is the same formula used under the SS Act; the individual will 

lose $1.00 in annuities for every $2.00 earned over the annual exempt amount. The 

reduction for earnings is applied to the O/M rate after adjustment for the family 

maximum and before reduction for other benefits.

The general SS Act earnings test provisions outlined in FOM-I-1105 apply to O/M work 

deductions. Work deductions no longer apply beginning the month the beneficiary 

attains full retirement age. Penalty deductions may be applied under the O/M as they 

are for retirement annuities. Work deductions may also apply to the O/M under the 

foreign work test for employment outside the U.S. A reference in this article to a spouse 

includes a divorced spouse; work deductions are applied to both in the same manner. 

Beginning 1-1-85, however, the employee's earnings do not affect the annuity of a 

divorced spouse if she has been divorced from the employee at least 2 years.

1130.5.2 RR Act Provisions

Although O/M work deductions are based on SS Act rules, the RR Act also prohibits 

payment of an annuity for any month the annuitant works in railroad or last person 

service (prior to 12-1-1988). An employee annuity is not payable under either the RR or 

O/M formula if the employee works in railroad or last person service (prior to 12-1-

1988). A spouse's or child's benefit is not payable for any month the employee's 

annuity is not payable.

A spouse or child O/M beneficiary only does not have to cease railroad or last person 

service (prior to 12-1-1988) to be included in the O/M. If a spouse included in the O/M 

is entitled to a railroad annuity, her annuity is not payable for any month she works in 

railroad or last person service (prior to 12-1-1988). If the O/M rate was already in force, 

her share of the O/M may be redistributed among other family members, even though 

her railroad annuity is not payable.
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1130.10 O/M Test When Work Deductions Apply

The test to determine if the O/M rate is payable is applied to the total RR formula and 

O/M computation monthly rates before application of work deductions. The provisions 

that restrict when the RR formula rate may switch to the O/M are explained in FOM-I325.40. 

A. If the O/M computation is higher and there are no switching restrictions, the O/M 

is applicable. The annuity may revert back to the RR formula (subject to RR Act 

work deductions) on a month-by-month basis if this would result in higher 

benefits.

B. If the RR rate is higher, the RR formula is applicable. Work deductions under the 

RR formula do not allow a switch to the O/M computation.

1130.15 Filing for O/M When Auxiliary Beneficiary Has Excess 

Earnings

When an O/M auxiliary beneficiary has excess earnings, it is not disadvantageous for 

that individual to file for inclusion in the O/M. That individual's share of the family 

maximum is simply redistributed among the other family members for the months the 

working beneficiary is not included. This is unlike survivor annuity family maximum 

benefits, in which benefits are withheld from the family group when a working member 

cannot be included.

BRB will determine if the O/M family maximum is payable without the working 

beneficiary. If the maximum can be paid to the other family members, the working 

beneficiary will not be included in the O/M computation. That beneficiary will be entitled 

to the O/M, but simply not included in the computation. This relieves the annuitant of 

the responsibility of reporting earnings annually, and relieves BRB of the need to make 

adjustments for work deductions. If the family maximum is not payable without the 

working beneficiary, that individual will be included in the O/M.

No annual policing form (Form G-19) will be sent if an auxiliary beneficiary with excess 

earnings is excluded from the O/M for all months and the estimated earnings prevent 

any payment. The beneficiary must notify us if earnings decrease. If the working 

member must be included in the O/M for the family maximum to apply after the number 

of family members in the O/M has decreased, BRB will ask you to contact that individual 

for an earnings estimate.

A spouse does not have to cease railroad or last person service to be included in the 

O/M. However, she must cease railroad or last person service to become entitled to a 

railroad annuity. 
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1130.20 Penalty for Failure To Report Earnings

A penalty deduction may apply under the O/M if the employee fails to make a timely 

report of earnings for himself or an auxiliary beneficiary and an overpayment results.

1130.20.1 Timely Report of Earnings Defined

Ordinarily, a report is considered timely if it is received by April 15th of year.

To report earnings after the annuity application is filed, an annuitant (or his 

representative) should submit a signed statement of the total gross earnings for the 

year, or net earnings from self-employment (SEI). An estimate of earnings for the 

current year should always be included when a final report for a previous year is made. 

The annuitant should be encouraged to make as high an estimate as practical to avoid 

a possible overpayment. 

An oral report of earnings (telephone call or personal visit to the field office) can protect 

the date of the earnings report. However, the report should be documented in writing 

and signed by the annuitant. 

Effective with 2002 earnings reports (those due on or after April 15, 2003), SSA’s report 

of earnings will also be the RRB’s official report of earnings. The earnings report we 

receive from SSA will be “deemed timely” regardless of when it is received. The 

annuitant is no longer required to file a report of earnings unless one of the following 

conditions applies:

• The annuitant stops working;

• The annuitant starts working and expects to earn more than the annual exempt 

amount;

• The annuitant’s employment is not covered under the Social Security Act;

• The annuitant goes to work for a railroad or railroad labor organization; or

• RRB requests the annuitant to report earnings.

This revised process applies for age and service work deduction cases. It has no effect 

on reports required for:

• LPE earnings,

• Securing earnings information with initial application filing,

• Annuitants who start to work after initially reporting no earnings, or

• Disability earnings reports.
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1130.20.2 Determining Penalty Deductions

For the first late report, the penalty deduction is equal to the O/M rate applicable for 

December of the report year. The full O/M rate is deducted because benefits for an 

auxiliary beneficiary are not payable under the O/M when the employee O/M annuity is 

not payable. However, the annuity may be paid under the RR formula, less any work 

deduction components, for the deducted penalty month. The annuity may revert back to 

the RR formula (subject to RR Act work deductions) on a month-by-month basis if this 

results in higher benefits.

For the second late report, the penalty deduction equals two times the O/M rate for 

December of the report year. For the third and any subsequent late report, the penalty 

deduction equals three times the O/M rate for December of the report year. The RR 

formula rate may always be paid when the O/M is not payable because of penalties, but 

work deduction components must be withheld. The penalty does not increase the 

amount of the work deduction components withheld.

A penalty deduction may never be less than $10.00. Penalties for any report year may 

never exceed the number of months for which the annuitant was entitled to payment in 

that year.

1130.20.3 Applying Penalties

Penalties may be repaid only by withholding annuities from the annuitant to whom the 

penalty deduction applies. Penalties are not transferable to any other entitled person. 

They may not be recovered actuarially or repaid by a temporary partial withholding plan.

Cash refund of a penalty deduction is never requested, but will be accepted if offered by 

the annuitant.

1130.25 Non-Disabled Employee Has Excess Earnings

Work deductions will apply to a non-disabled employee under full retirement age who 

earns over the annual limit. The deductions are applied to 100% of the total family O/M 

rate, before reduction for other benefits. The employee's entire O/M rate is affected, as 

well as the O/M share of any family member included in the annuity computation, 

regardless of age or work status. The withholding is applied beginning with the first 

month of the entitlement year and applies to succeeding months until the required

amount has been withheld.

When an employee has excess earnings in the year he attains full retirement age, only 

earnings through the month before the month in which he attains full retirement age are 

counted (see -1105.20). The spouse's or divorced spouse's O/M share may also be 

affected by the employee's earnings for the months the employee is under full 

retirement age. The spouse's or divorced spouse's O/M share in this case may be 

withheld even if she is over full retirement age, but deductions may be applied only in 

the same months deductions are applied to the employee O/M. A divorced spouse is 

not affected by the employee's earnings beginning 1-1-85, if she has been divorced 2 
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years. The child's O/M may also be withheld only in the months the employee's O/M is 

withheld.

The employee who is being paid under the O/M is always guaranteed payment of the 

railroad retirement formula annuity, unless provisions of the RR Act prevent payment. 

For instance, the annuity may not be paid for any month the employee works in railroad 

or last person service (prior to 12-1-1988). If the annuity is otherwise payable, the 

employee is guaranteed to receive the railroad retirement formula, less reduction for the 

work deduction components, if the employee has a work deduction insured status.

EXAMPLE: The O/M rate for the employee alone is $2,320.00. His earnings of 

$40,000.00 in 2021 require withholding of $10,520.00 ($21,040.00 over the annual limit 

of $18,960.00). During 2021, the employee's O/M would be withheld for 5 months to 

deduct $10,520.00. In those months, however, the employee may be paid the RR 

formula rate of $2045.00, minus the work deduction component of $1095.00 because 

he has a work deduction insured status.

1130.30 Disabled Employee Receiving Disability O/M

A disabled employee under full retirement age who is receiving the disability overall 

minimum (DIB O/M) rate is not subject to reduction for excess earnings under the SS 

Act provision. However, all disability annuitants are subject to the RR Act disability 

earnings restriction, whether paid the O/M or RR rate. A disability annuitant under the 

RR Act may not earn over $12,749.99 in 2021. No annuity is payable for any month the 

disabled employee earns over $1020.00 in a month in 2021. Benefits for auxiliary 

beneficiaries are not payable when the employee annuity is not payable. Exception: 

Beginning August 17, 2007, a divorced spouse of a disabled employee will not be 

assessed work deductions for the employee’s earnings. Disability work restrictions 

are explained in FOM-I-1125. 

A disabled employee's earnings may indicate that he is able to perform substantial 

gainful activity, which may indicate cessation of disability. Development for continuance 

of disability will be requested when necessary.

An auxiliary beneficiary (except a disabled child) is always subject to work deductions 

based on his own excess earnings. Consequently, the family shares of the DIB O/M 

may be deducted if the employee reports excess earnings for auxiliary beneficiaries 

included in the O/M. The employee's O/M share, however, is not affected by the excess 

earnings of an auxiliary beneficiary.

A disabled employee receiving the DIB O/M becomes subject to regular retirement work 

deductions when he attains full retirement age. 
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1130.35 Auxiliary Beneficiary Has Excess Earnings

1130.35.1 Deductions When Auxiliary Beneficiary Has Excess Earnings

When a spouse, divorced spouse or non-disabled child has earnings over the annual 

limit, deductions are applied to 100% of that person's O/M share after adjustment for the 

family maximum and before reduction for other benefits. None of the excess may be 

withheld from the shares of the employee or any other family member included in the 

O/M.

The family maximum is readjusted to exclude the working member when excess 

earnings cause full or partial withholding of the O/M share. If a spouse has excess 

earnings and may not be included in the O/M, her share of the family maximum is 

distributed among the other auxiliary beneficiaries included in the O/M. However, the 

auxiliary beneficiary's share may never exceed the statutory limit (50% of the Primary 

Insurance Amount).

A spouse or divorced spouse is not subject to work deductions based on her own 

earnings beginning the month full retirement age is attained.

A disabled child is not subject to an earnings limit at any age. However, earnings that 

indicate the beneficiary is able to perform substantial gainful activity may indicate the 

cessation of disability. Development for continuance of disability will be requested when 

necessary.

If a spouse or divorced spouse included in the O/M is also entitled to an RR Act annuity, 

she is guaranteed payment of the railroad retirement annuity formula unless provisions 

of the RR Act prevent payment. For instance, the spouse or divorced spouse annuity 

may not be paid for any month they work in railroad or last person service (prior to 12-1-

1988). If the annuity is otherwise payable, the spouse or divorced spouse will receive 

the RR formula rate less reduction for the work deduction components if the employee 

or spouse has a work deduction insured status.

The annuity rate cannot be switched from the RR formula to the O/M computation solely

to include a spouse annuitant whose annuity is suspended because she is in railroad 

service. However, if the O/M was in force prior to the application of work deductions, 

and the spouse annuity is later suspended because the spouse is in railroad service, 

the spouse's share of the family maximum, after deductions for excess earnings, may 

be included in the employee's O/M rate if it yields a higher monthly rate than the RR 

formula rate.

1130.35.2 Deductions When Employee and Auxiliary Beneficiary Have Excess 

Earnings

When the employee and an auxiliary beneficiary (except a disabled child) have excess 

earnings, the employee's excess amount is recovered first. The employee's excess 

earnings may cause withholding of an auxiliary beneficiary's O/M share. The excess of 
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the auxiliary beneficiary is then withheld from the remaining O/M share payable to that 

individual.

1130.45 Temporary Work Deductions

Work deductions are assessed on a "temporary basis" during the current year. The 

work deductions are temporary because the withholding is based on an estimate of 

earnings. The withholding is intended as an offset to prevent or reduce an overpayment 

when the final adjustment is made. Temporary work deductions are required whenever 

an employee or auxiliary beneficiary under full retirement age expects to have earnings 

over the annual exempt amount.

When the grace year applies, work deductions are not applied for any month the 

employee or auxiliary beneficiary did not earn over the monthly exempt amount and did 

not perform substantial services in self-employment. When the grace year does not 

apply and the annual earnings test is used, deductions are applied beginning with the 

first month of the taxable year, regardless of the amount of monthly earnings.

The amount to be withheld from the O/M must first be determined. The excess earnings 

amount equals $l.00 for every $2.00 earned over the annual limit. Payments are always 

withheld in increments of full months, rather than making a partial payment for a month. 

For example, if the O/M must be withheld for 3 1/2 months to recover excess earnings, 

the O/M will be withheld for 4 full months. Any additional amount due the annuitant will 

be paid in the final adjustment.

1130.45.1 Employee Has Excess Earnings

When an employee annuitant paid under the O/M has excess earnings, temporary work 

deductions are applied by restricting his annuity payment to the railroad formula rate. If 

the employee has LPS earnings, work deductions are applied as (discussed in FOM-I1121. If the employee has a work deduction insured status, work deductions are 

applied to the railroad rate by withholding the work deduction components as described 

in FOM-I-1120. Payment is restricted to the railroad rate to minimize any overpayment 

that may occur.

When a spouse annuity is payable, that annuity is also restricted to the railroad formula 

rate. If the employee has a work deduction insured status, the spouse work deduction 

components will be withheld if the employee has excess earnings.

The employee and/or spouse annuity is usually restricted to the railroad rate for the rest 

of the year when excess earnings are reported, rather than increasing the annuity again 

to the O/M rate after sufficient deductions have been made. Any additional annuities 

payable will be determined when permanent work deductions are applied. 

EXAMPLE: The employee expected to earn $17,030.00 in 2021, causing excess 

earnings of $2,140.00 ($4,280.00 over the limit of $12,750.00). The O/M rate was 

$1,004.40; the employee's share was $573.90 and the spouse's and child's shares were 
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$215.30. To assess temporary work deductions, the employee was paid the RR rate of 

$836.49, less work deduction components of $123.16.

1130.45.2 Auxiliary Beneficiary Has Excess Earnings

When a spouse, divorced spouse or child has excess earnings, only that person's O/M 

share may be withheld to recover excess earnings. If a spouse is included in the O/M 

and is entitled to an annuity, temporary work deductions are applied by restricting the 

spouse annuity to the railroad formula rate. If the spouse has a work deduction insured 

status, her retirement formula work deduction components are deducted from the 

annuity as explained in FOM-I-1120. The employee's annuity will also be paid under 

the railroad formula if it is determined that the O/M rate will not apply without including 

the spouse. However, if the O/M rate without the spouse exceeds the combined 

railroad rates of the employee and spouse, the O/M rate will still be paid to the 

employee.

If a spouse or divorced spouse is not entitled to an annuity, 100% of the auxiliary 

beneficiary's O/M share is withheld until the excess earnings are recovered. For the 

months the auxiliary beneficiary is not included in the O/M, the family maximum is 

redistributed to the other family members. The annuity is paid at the O/M rate that 

excludes the working member, but the employee's railroad rate may be paid if it is 

higher.

Generally, the working auxiliary beneficiary is excluded from the O/M for every month in 

the year that excess earnings are reported. The O/M share will be reinstated if the 

beneficiary ceases work and the monthly earnings test applies. Any additional annuities 

payable will be determined when permanent work deductions are applied.

EXAMPLE: The family group included in the O/M in 2021 was the employee, spouse, 

and minor child. In March, the spouse reported that she would earn approximately 

$19,880.00, excess earnings of $460.00 ($920.00 over the limit of $4,080.00). The 

spouse's O/M share was $158.70. Even though her excess earnings would be 

recovered in 3 months, she is put in temporary work deduction status for the remainder 

of the year.

The child's O/M share was also $158.70. However, the family maximum was 

recomputed without the spouse when her share was deducted for excess earnings. 

Consequently, when the spouse dropped out, the child's O/M share was increased to 

$176.40, which equals 50% of the employee's PIA (Primary Insurance Amount). The 

O/M rate continued to be payable because the O/M rate for the employee and child 

($529.20) exceeded the employee's RR rate of $495.00.

1130.45.3 Employee and Auxiliary Beneficiary Have Excess Earnings 

When an employee and an auxiliary beneficiary are subject to work deductions, the 

employee's excess earnings are recovered first. The excess earnings of the spouse, 
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divorced spouse or child may be applied only to the auxiliary benefit remaining after 

applying deductions for the employee's excess earnings.

In assessing temporary work deductions, the employee and the spouse annuity, if any, 

would be recertified to pay the RR formula rate. Work deduction components would be 

deducted from the annuity if the employee and/or spouse have a work deduction 

insured status.

1130.50 Permanent Work Deductions

Permanent work deductions are computed after the end of the year, when the actual 

earnings amount has been reported. Based on the actual earnings, the final withholding 

amount is determined. The correct amount payable is compared with the annuities that 

were paid, and an overpayment or an accrual may result.

When the employee has excess earnings, the withholding amount is deducted from 

100% of the family O/M rate. Withholding begins with the first month of the taxable 

year, unless the monthly earnings test applies. If the report year is a grace year, no 

deductions may apply to a month the worker did not earn over the monthly exempt 

amount and did not render substantial services in self-employment.

Since the employee's earnings cause withholding of the O/M shares for other family 

members, the excess earnings of an auxiliary beneficiary are recovered after the 

employee's deductions. The earnings of an auxiliary beneficiary do not affect the O/M 

shares for other beneficiaries. However, the family maximum may be recomputed to 

distribute that individual's share among the other family members.

EXAMPLE 1: The O/M family group consists of an age and service annuitant, spouse 

and minor child. The 1-1-2021 O/M rates payable before work deductions are:

Employee Spouse Child

$573.10 $215.00 $215.00

The employee had earnings of $23,680.00 and earned over $1,580.00 each month. No 

temporary work deductions had been assessed in 2021. His excess earnings of 

$2360.00 ($4,720.00 over the exempt amount of $3,720.00) cause the full withholding 

of the family O/M rate ($1003.10) for January and February 1980, and $353.80 must be 

withheld for March. That leaves a partial benefit of $649.30 payable to the family for 

March.

However, the employee's RR formula rate is $731.26 effective 1-1-80. He does not 

have a work deduction insured status. Therefore, his RR rate is payable for January 

through March 2021 ($2,193.78 for 3 months), because his RR rate is higher. His 
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overpayment for excess earnings is only $815.52 (3 x $1003.10 - 3 x $731.26) instead 

of $2,360.00. The rate summary after work deductions is:

Employee Spouse Child

1-1-2021 $731.26 -

2-1-2021 731.26 -

3-1-2021 731.26 -

4-1-2021 573.10 $215.00

The family group is entitled to the regular family maximum rates for the remaining 

months in 2021.

EXAMPLE 2: The family group consists of the disabled employee, spouse, full-time 

student (FTS) and minor child in the spouse's care. The PIA effective 1-1-2021 is 

$359.50 with a family maximum of $653.50, and effective 12-1-2021 is $380.80 with a 

family maximum of $692.10.

The O/M rates payable before applying work deductions are as follows:

Employee Spouse FTS Child

1-1-2021 $359.50 $ 98.00 $ 98.00 $ 98.00

6-1-2021 380.80 103.80 103.80 103.80

The spouse earned $19,210.00 in 2021 and had excess earnings to be withheld of 

$125.00. The FTS earned $19,730.00 in 2021 and had excess earnings of $385.00.

The rates payable after work deductions are as follows:

Employee Spouse FTS Child

1-1-2021 $359.50 $ - $ - $179.80

2-1-2021 359.50 71.00 - 179.80

3-1-2021 359.50 147.00 - 147.00

4-1-2021 359.50 143.50 7.00 143.50
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5-1-2021 359.50 98.00 98.00 98.00

The family group is entitled to the regular family maximum rates for the remaining 

months in 2021. 

The spouse's excess earnings of $l25.00 are recovered by deducting $98.00 for 1-2021

and $27.00 for 2-2021. The FTS' excess earnings of $385.00 are recovered by 

deducting $98.00 for 1-2021, 2-2021, and 3-2021 and $91.00 for 4-2021. For the 

months the spouse and FTS are excluded, the child's O/M share increases but may not 

exceed 50% of the PIA ($179.80). For 3-2021 and 4-2021, when the FTS has work 

deductions, the amount of the family maximum remaining after the employee's share is 

considered (balance of the family maximum is $294.00), is redistributed among the 

family members included each month. For 3-2021, the spouse and child each get half of 

$294.00. For 4-2021, the FTS is paid $7.00, and the remaining balance ($287.00) is 

divided between the spouse and child.

The employee's RR rate is only $363.55 effective 1-1-2021, so the O/M rate exceeded 

the RR rate in all months.

1130.55 Effect Of Social Security Entitlement

When an employee paid under the O/M has excess earnings, $1.00 of his O/M benefit 

is withheld for every $2.00 of earnings over the annual limit. If the employee is 

receiving a social security benefit, he also loses $1.00 of the social security benefit for 

every $2.00 of earnings over the annual limit. The effect could be that the employee 

would lose $1.00 in benefits for every $1.00 earned over the limit, because he is 

reduced twice for the same earnings.

However, the employee is guaranteed to receive his railroad formula rate, less the 

applicable work deduction components. In most cases, this will prevent the $1.00 for 

$1.00 loss because of excess earnings. Also, additional SS benefits will be payable to

the employee if auxiliary benefits are payable. Therefore, filing for social security 

benefits is generally not disadvantageous to an employee who has excess earnings and 

is paid under the O/M.