The residual lump-sum is the means by which railroad employees and their survivors are guaranteed to receive at least as much in benefits as the employee paid in railroad retirement taxes for the years 1937 through 1974. A residual lump-sum is not taxable for Federal income tax purposes.
The amount of the residual lump-sum equals the amount of the railroad retirement taxes paid by the employee prior to 1975 plus an allowance for interest.
The gross residual amount is reduced by:
- The amount of all retirement benefits which the employee received based on his or her railroad work; and
- The total amount of any survivor benefits based on the employee's account which were paid by either the RRB or the Social Security Administration.
In most cases, there is no residual lump-sum because the total amount of benefits paid is more than the gross residual amount.
In addition, even if a residual lump-sum exists, it cannot be paid if any railroad retirement or social security benefits are currently being paid based on the employee's account or if benefits can be paid in the future. There is one exception. A widow(er) or parent who is not currently entitled can elect to receive the residual lump-sum instead of future payments. (See the section, "Person Eligible For Monthly Benefits May Receive A Residual Lump-Sum Instead Of Monthly Benefits.")