The amounts of compensation subject to
railroad retirement tier I and tier II payroll taxes will increase in 2013. The
tier I tax rates will remain the same on railroad employers, while railroad
employees will see their effective tier I rate increase from 5.65 percent to
7.65 percent. The tier II tax rate on both employers and employees will increase
by 0.5 percent. Also, railroad unemployment insurance tax rates paid by
employers will not include a surcharge in 2013.
Tier I and Medicare Tax.--The
railroad retirement tier I payroll tax rate on covered rail employers for the
year 2013 remains at 7.65 percent. However, railroad employees will see their
effective tier I rate increase from 5.65 percent to 7.65 percent. Legislation
enacted in 2011 and 2012 provided for a temporary reduction of 2 percentage
points in the social security payroll tax paid by employees, but that is
currently scheduled to expire at the end of 2012. The railroad retirement tier I
tax rate is the same as the social security tax, and for withholding and
reporting purposes is divided into 6.20 percent for retirement and 1.45 percent
for Medicare hospital insurance. The maximum amount of an employee's earnings
subject to the 6.20 percent rate increases from $110,100 to $113,700 in 2013,
but there is no maximum on earnings subject to the 1.45 percent Medicare rate.
The Medicare payroll tax on high-income
earners will also be increasing. Starting in 2013, an additional tax of 0.9
percent will be due on an individual's income exceeding $200,000, or $250,000
for a married couple filing a joint tax return. While employers will begin
withholding the additional Medicare tax as soon as an individual's wages exceed
the $200,000 threshold, the final amount owed or refunded will be calculated as
part of the individual's Federal income tax return.
Tier II Tax.--The railroad
retirement tier II tax rate on employees will increase to 4.4 percent in 2013,
up from 3.9 percent, and the employers' rate will increase to 12.6 percent from
12.1 percent. The maximum amount of earnings subject to railroad retirement tier
II taxes will increase from $81,900 to $84,300 in 2013. Since 2004, tier II tax
rates are based on an average account benefits ratio reflecting railroad
retirement fund levels. Depending on this ratio, the tier II tax rate for
employees can be between 0 percent and 4.9 percent, while the tier II rate for
employers can range between 8.2 percent and 22.1 percent.
Unemployment Insurance Tax.--Employers,
but not employees, pay railroad unemployment insurance taxes, which are
experience-rated by employer. The Railroad Unemployment Insurance Act also
provides for a surcharge in the event the Railroad Unemployment Insurance
Account balance falls below an indexed threshold amount, and a surcharge of 1.5
percent applied in 2012. The accrual balance of the Railroad Unemployment
Insurance Account was more than $184.9 million on June 30, 2012. Since the
balance exceeded the indexed threshold of $137.3 million, no surcharge applies
to the basic tax rates for 2013. A surcharge of 2.5 percent applied in 2011,
with a surcharge of 1.5 percent in the years 2004-2010.
As a result, the unemployment insurance tax
rates on railroad employers in 2013 will range from the minimum basic rate of
0.65 percent to the maximum of 12 percent on monthly compensation up to $1,405,
an increase from $1,365 in 2012.
In 2013, the minimum rate of 0.65 percent will
apply to 74 percent of covered employers, with 10 percent paying the maximum
rate of 12 percent.
During the year, new employers will pay an
initial tax rate of 3.69 percent, which represents the average rate paid by all
employers in the period 2009-2011.
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