The amounts of compensation subject to railroad retirement tier I and tier II
payroll taxes will increase in 2014, while the tier I and tier II tax rates will
remain the same on both railroad employers and employees. Also, railroad
unemployment insurance contribution rates paid by employers will not include a
surcharge in 2014.
Tier I and Medicare Tax.--The railroad retirement tier I
payroll tax rate on covered rail employers and employees for the year 2014
remains at 7.65 percent. 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 $113,700 to $117,000 in 2014, but there is no
maximum on earnings subject to the 1.45 percent Medicare rate.
An additional Medicare payroll tax of 0.9 percent applies to 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
Tier II Tax.--The railroad retirement tier II tax rate on
employees will remain 4.4 percent in 2014, and the employers' rate will stay at
12.6 percent. The maximum amount of earnings subject to railroad retirement tier
II taxes will increase from $84,300 to $87,000 in 2014. 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 Contributions.--Employers, but not
employees, pay railroad unemployment insurance contributions, 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. The accrual balance of
the Railroad Unemployment Insurance Account was $204.2 million on June 30, 2013.
Since the balance exceeded the indexed threshold of $144.8 million, no surcharge
applies to the basic contribution rates for 2014. There was also no surcharge in
2013, although a surcharge of 1.5 percent applied in 2012.
As a result, the unemployment insurance contribution rates on railroad employers
in 2014 will range from the minimum basic rate of 0.65 percent to the maximum of
12 percent on monthly compensation up to $1,440, an increase from $1,405 in
In 2014, the minimum rate of 0.65 percent will apply to 79 percent of covered
employers, with 9 percent paying the maximum rate of 12 percent.
During the year, new employers will pay an unemployment insurance contribution
rate of 4.53 percent, which represents the average rate paid by all employers in
the period 2010-2012.
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