The railroad unemployment and sickness benefit programs are financed exclusively by contributions of railroad employers, based on the taxable earnings of their employees. The employees themselves do not contribute.
Experience-based tax rates were phased in during 1991. Each employer pays contributions at a rate which takes into consideration the employer's actual incidence of benefit usage. Under experience rating, employers whose employees have low incidences of unemployment and sickness pay contributions at a lower rate than employers with higher levels of benefit usage. Each employer's rate also has a component for administrative expenses and a component to cover costs shared by all employers.
In 2015, the basic tax rates on railroad employers, including covered commuter railroads, range from a minimum of 0.65 percent to a maximum of 12 percent. Also, a surcharge of 1.5 percent is added to the basic tax rates, as the Railroad Unemployment Insurance Account accrual balance of $140.8 million was less than the indexed threshold of $141.2 million but greater than a threshold of $70.6 million on June 30, 2014. Some 77 percent of employers are being assessed 2.15 percent in 2015 (the 0.65 percent minimum rate plus the 1.5 percent surcharge). New employers initially pay a tax of 4.09 percent in 2015, which represents the average rate paid by all employers in the period 2011-2013.
A surcharge is added to each employer's tax rate during any calendar year in which the balance in the Railroad Unemployment Insurance Account on the preceding June 30 is less than an indexed threshold amount. If the account balance is less than $100 million (as indexed), but at least $50 million (as indexed), the surcharge will be 1.5 percent. If the account balance is less than $50 million (as indexed), but greater than zero, the surcharge will be 2.5 percent. A maximum surcharge of 3.5 percent applies if the account balance is less than zero. If the account balance on the preceding June 30 is above $250 million (as indexed), the excess will be refunded to the employers in the form of a rate reduction for the year through a pooled credit. Each employer's tax rate (prior to application of individual maximum and minimum limitations) will be reduced by the ratio of the excess amount to the taxable payroll of all employers.
The experience-based tax rates have a 12 percent maximum, or a 12.5 percent maximum if a 3.5 percent surcharge is in effect. Included in the rate is the basic rate, an administration tax rate of 0.65 percent, and, if either is applicable, the surcharge rate or the rate of the pooled credit. Since the basic employer tax rate plus any pooled credit cannot be less than zero, 0.65 percent is the minimum rate which any employer can pay.