Please distribute this notice to all individuals within your organization who may need the information in connection with their work.
Payroll Tax Cut.-- The payroll tax reduction that had previously been scheduled to expire at the end of 2011 has been extended through February 29, 2012 .The Tax Relief Act provides a reduction of 2 percentage points in social security payroll taxes paid by employees. Railroad retirement benefits are divided into two tiers, with Tier I being equivalent to social security benefits.
As a result, the Tier I tax rate on railroad employees will drop from 6.2 percent to 4.2 percent. Employees will continue to pay a 1.45 percent tax for Medicare hospital insurance, for a total tier I payroll tax rate of 5.65 percent. The maximum amount of earnings subject to the new rate of 4.2 percent remains at $110,100, although there is no maximum on earnings subject to the Medicare rate. The employer Tier I tax rate remains 7.65 percent
The Act also provides for the transfer of money from the general fund to the Social Security Equivalent Benefit Account, one of the trust funds from which the Railroad Retirement Board (RRB) pays benefits, in an amount equal to the revenue lost due to the reduced payroll tax rate.
In addition, the continuation to the Act provides for a 2 percentage point reduction in the Tier 1 tax rate for any sickness benefits processed for payment through February 29, 2012. The current, overall tax rate of 7.65% includes 6.2% for Tier 1 and 1.45% for Medicare. The new, reduced rate will be 5.65% which now includes 4.2% for Tier 1 and 1.45% for Medicare, thus increasing the net amount of sickness benefit payments, except for claimants injured on duty. This is a temporary provision, only applicable to sickness claims processed for payment through February 29, 2012.
If you have any questions, please contact the Railroad Retirement Board.