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5.13.1 General

The 1974 Railroad Retirement Act (RRA) provides tax refund for employees with social 

security employment not entitled to a windfall benefit. The refund is payable if the 

employee's combined taxable earnings in any year after 1950 from both systems 

exceeded the railroad retirement annual maximum for that year. The employee's 

excess social security taxes will be refunded by the Board for any year in the period 

1951-1974 automatically to him upon his retirement. For years after 1974, an employee 

will have to apply for the excess social security taxes he paid when he files his income 

tax return.

This chapter explains when a tax refund is payable, how to compute a tax refund, and to 

whom a tax refund can be paid.

5.13.2 When a Tax Refund is Payable

The tax refund is payable to employees who are not dually vested for a windfall amount 

as of 12-31-74 on their own earnings record. An employee is considered to be dually 

vested on his own earnings record as of 12-31-74 if he meets one of the following 

conditions:

A. He is fully insured under the SS Act as of 12-31-74 and;

1. Has 10 years of RR service before 1975, and either

• Engaged in railroad service in 1974; or

• Had a current connection with the railroad industry either on 12-31-74 

or on his ABD; or

2. Had 25 years of railroad service prior to 1-1-75.

B. The employee is dually vested if he:

1. Did not engage in railroad service in 1974; and

2. Did not have a current connection with the railroad industry either on 12-

31-74, or at the time his annuity began to accrue; and

3. Did not have 25 years of service prior to 1-1-75; but 

4. Did have 10 years of service prior to 1-1-75, and was permanently insured 

under the SS Act at the end of the last year before 1975 in which he 

engaged in railroad service.

Although the windfall amount cannot be paid until the employee meets the RIB or 

DIB entitlement requirements under the SS Act, the tax refund should be paid at 
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the time the initial award is made. Examiners should determine if the employee 

is dually vested and pay the tax refund if (s)he is not.

NOTE: In some disability annuity cases, a vested status may depend on whether 

the employee has a DF. In those cases, the tax refund should not be paid until 

the employee's DF vested status is determined. 

DPS examiners will forward non-vested cases for payment of the tax refund if the 

DF is denied.

5.13.3 Amount of Tax Refund

The tax refund is equal to the sum of the percentage of the employee's combined 

earnings in excess of the SS maximum for the years 1951 through 1974. Creditable 

M/S after 1951 can be included in the combined yearly earnings as follows:

• $160 for each month of M/S creditable under the RR Act after 1951 and before 

1968, and

• $260 for each month of M/S creditable under the RR Act after 1967 and through 

1974, and

• Military service "basic pay" for months of M/S creditable under the SS Act after 

1956.

M/S for the period from 1951 through 1956 was not initially included in either the manual 

or mechanical calculation of the tax refund. The mechanical program was corrected 

effective with G-90's printed January 17, 1979 or later. Refunds paid without including 

this M/S should be recomputed only if we receive an inquiry or complaint about the 

refund amount.

Normally, the tax refund will be computed mechanically by BCC and shown on Form 

G-90 in item 2 of page 1 with the caption "Excess Tax." However, if the tax refund must 

be determined manually, the following chart shows the maximum creditable 

compensation and wages for the period 1951-1974 and the percentage applicable to 

each year.

(A) (B) (C)

Maximum Creditable

Service Years Percentage Comp. & Wages

1951-1953 1.5 $ 3,600

1954-1956 2.0 4,200

1957-1958 2.25 4,200

1959 2.5 4,800

1960-1961 3.0 4,800

1962 3.125 4,800
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1963-1965 3.625 5,400

1966 4.2 6,600

1967 4.4 6,600

1968 3.8 7,800

1969-1970 4.2 7,800

1971 4.6 7,800

1972 4.6 9,000

1973 4.85 10,800

1974 4.95 13,200

Use the following steps to compute the tax refund amount:

Step 1 - Determine the employee's wages and compensation for each year, or period of 

years (when necessary).

Step 2 - Determine the years, or periods of years, when the employee's combined 

earnings exceed the maximum creditable wages and compensation (see chart above).

For each such year, subtract the amount of the maximum creditable wages and 

compensation from the employee's actual wages and compensation for that year.

Step 3 - Multiply the results from step 2 by the applicable percentage shown in the table 

above.

Step 4 - Total the results of step 3. This is the amount of the employee's tax refund.

EXAMPLE:

John Jones worked for the TCB Railroad from 1-1-47 through 12-31-74. During the 

Christmas season, he also worked as a Santa Claus for the local department store. Mr. 

Jones' G-90 shows combined wages and compensation for the 1951-1974 period as 

follows:

Service Years Combined Wages 

and Comp.

1951-1953 10,890.00

1954-1956 12,700.00

1957-1958 8,550.00

1959 4,850.00

1960-1961 9,675.00

1962 4,830.00

1963-1965 16,290.00

1966 6,640.00

1967 6,640.00

1968 7,845.00

1969-1970 15,690.00
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1971 7,845.00

1972 9,050.00

1973 10,850.00

1974 13,260.00

His tax refund is computed as follows:

Year Excess 

Earnings

Percentage Tax Refund

1951-1953 $ 90.00 x 1.5 = $ 1.35

1954-1956 100.00 x 2.0 = 2.00

1957-1958 150.00 x 2.25 = 3.76

1959 50.00 x 2.5 = 1.25

1960-1961 75.00 x 3.0 = 2.25

1962 30.00 x 3.125 = .94

1963-1965 90.00 x 3.625 = 3.26

1966 40.00 x 4.2 = 1.68

1967 40.00 x 4.4 = 1.76

1968 45.00 x 3.8 = 1.71

1969-1970 90.00 x 4.2 = 3.78

1971 45.00 x 4.6 = 2.07

1972 50.00 x 4.6 = 2.30

1973 50.00 x 4.85 = 2.43

1974 60.00 x 4.95 = 2.97

$33.51

When Mr. Jones was awarded an age and service annuity in September 1975, he was 

also paid his $33.51 tax refund.

5.13.4 Effect of Tax Refund on Other Benefits

The tax refund has no effect on the payment of retirement benefits, either employee or 

spouse. However, the tax refund is a deductible amount for the residual lump sum in 

survivor cases, whether it was paid to the employee while alive or to his survivors after 

his death.

5.13.5 Paying Tax Refund in Retirement Cases

Most tax refunds are paid mechanically in the RASI system. When paying a tax refund 

manually, (RASI and the G-90 indicate that a tax refund is payable) take the following 

action:

A. Award Form - Use Form G-375 to award the tax refund to an employee. Although 

the G-375 is self-explanatory, instructions for its completion are in RCM Chapter 

8.6, "Employee Annuity Forms."
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If an annuity is also being paid manually, Form G-375 should be submitted for 

vouchering after the annuity is in pay status.

B. Award Notifications - If the tax refund is being paid manually, use Form G-69c to 

instruct the typist to include Code Paragraph 490 on the Form RL-24 award 

letter.

5.13.6 Paying Tax Refund in Survivor Cases

If the employee died after 1974, whether or not (s)he had retired, and the tax refund 

was not paid, the employee's survivors, or estate can receive the tax refund. An AA-21 

is required from each survivor for payment of the tax refund.

A. Priority of Payment - The tax refund is paid to an employee's survivors in the 

following order of precedence:

1. Widow(er). If living with the employee at the time of the employee's death. 

(Full amount.)

2. Children. (Equal shares if more than one survives. Full amount to sole 

survivor.) 

3. Grandchildren. (Equal shares if more than one survives. Full amount to 

sole survivor.)

4. Parents of deceased employee. (One-half to each if both survive. Full 

amount to sole survivor.)

5. Brothers and sisters, including half-blood brothers and sisters. (Equal 

shares if more than one survives. Full amount to sole survivor.)

6. Estate of deceased employee. (Full amount.)

B. Evidence Requirements

1. For all cases - Proof of the employee's death.

2. For payment to widow - Proof of marriage and proof of "living with" 

(statement on application is sufficient).

3. For payment to other relatives - Proof of relationship to the employee. 

Needed if each person's share exceeds $25.00. Needed from only one 

applicant if all applications list same relatives.

4. For payment to the employee's estate - Proof of appointment of executor 

or administrator (if no appointment is made, handle according to "no 

administration" procedure).
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C. Paying Tax Refund - Pay the tax refund on SURPASS. Instructions for paying the 

award on SURPASS can be found in RCM 16.9. SURPASS will automatically 

include code paragraph 533.1 on the award notification.

The tax refund can be combined with an LSDP paid to the widow or with an RLS 

based on relationship. Do not combine the tax refund with an LSDP paid to other 

than the widow since the priority of payment is not the same.