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  • Railroad Retirees-Are you overpaying?


    A commonly overlooked tax benefit for railroad retirees is the amortization of employee contributions.  The amount in Box 3 of your RRB 1099-R is allowed as a deduction when amortized over the number of retirement payments (assuming retirement started after 1986).  Said another way, only a portion of Box 4 is taxable if you have amounts in Box 3.  No, the Railroad Retirement Board does not compute or provide the taxable amount of your railroad retirement annuities.  That’s why it is often overlooked by tax preparers.

    The amount the employee contributes is considered an investment or cost in his or her pension.  The employee contribution is the amount of railroad retirement taxes paid by the railroad employee that exceeds the amount that would have been paid in social security taxes if the employee's railroad service had been covered under the Social Security Act. 

    Many tax preparers overlook or do not know about this benefit.  And yes, the tax software will compute this deduction, but the preparer does have to know how to enter it.  The deduction does take extra work.   

    If you receive railroad retirement benefits, make sure you are not paying more in taxes than you have to.

    Tory Wassgren | 10/10/2021

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