The tier I component of a railroad retirement annuity is composed of two parts:
- The Social Security Equivalent Benefit (SSEB) portion, and
- The Non-Social Security Equivalent Benefit (NSSEB) portion. Your tier I may be composed of SSEB only, NSSEB only, or both.
The SSEB portion of tier I is similar to a social security benefit and is treated as a social security benefit for Federal income tax purposes.
To determine if your SSEB portion of tier I and/or social security benefits are taxable, refer to the Social Security Benefits worksheet in the IRS booklet 1040 Instructions. For more detailed information, get IRS Publication 915, "Social Security Benefits and Equivalent Railroad Retirement Benefits".
The NSSEB portion of tier I and the tier II portion of a railroad retirement annuity are treated like contributory pensions for Federal income tax purposes. Only the amount of the contributory pension that exceeds the amount of contributions made by the wage earner is taxable. Refer to IRS Publication 939, "General Rule for Pensions and Annuities", to determine your taxable amount if you are not using the Simplified General Rule.