Any Railroad Retirement experts?

[taxmandan]

I'm having trouble figuring out the taxable amount from the RRB1099-R and need help. New clients, both have RRB-1099-R, I entered the information into the Drake RRB screen line by line. IRS Pub. 915 says the Contributory Amount Paid is not taxable, yet that is included on the line 7, Total Gross Paid which in turn goes to the 1040 line 16b as taxable. I'm having trouble understanding why that is happening when the Contributory Amount isn't supposed to be taxed. I don't see RRB very often, but is doesn't seem like the numbers are flowing correctly in the software to the 1040. Anyone have experience with this and can clarify for me how this pension should be handled?

[Gretel]

Ttb 13-20

I am not good at explaining but basically you have to know when he started to get pension and then using the Simplified Method to figure the amount that is non-taxable each year. You will also need to know the total amount since pension start that was treated as non-taxable. Do you see any non-taxable amount on last year's return?

[FEDUKE404]

Possibility

The contributory amount may well be an "original" number that now shows up each year on the tax document. I believe that is also the case with Civil Service Forms 1099-R ??

If this is not the first year these people have received the retirement, they will need to go back to the first tax year when they did receive the retirement and find those tax forms.

Hopefully the person preparing the returns in year #1 did the allocation correctly.

In the simplest of terms, so far as I know their original "cost" is spread out over many years, a la the Simplified Method worksheet.

FE

[Burke]

I'm having trouble figuring out the taxable amount from the RRB1099-R and need help. New clients, both have RRB-1099-R, I entered the information into the Drake RRB screen line by line. IRS Pub. 915 says the Contributory Amount Paid is not taxable, yet that is included on the line 7, Total Gross Paid which in turn goes to the 1040 line 16b as taxable. I'm having trouble understanding why that is happening when the Contributory Amount isn't supposed to be taxed. I don't see RRB very often, but is doesn't seem like the numbers are flowing correctly in the software to the 1040. Anyone have experience with this and can clarify for me how this pension should be handled?

I do many of these. I can't find anything in Pub 915 that says anything about the Contributory Amt not being taxable. That publication deals with Social Security benefits and the RRRB part of Social Security-equivalent benefit. The contributory amount paid shown on the green part of RRRB-1099R document is definitely taxable, just not all of it. (Most of the time). Your software should be calculating for the portion that is considered recapture of contributions. You might have to put in more information, like his age when he started receiving benefits, the total contributions he made, and how many payments he got in 2012. The total contributions of the employee is on the green part of RRRB-1099R, in Box 3. My software calculates the taxable amount and tracks the past amts recovered, showing the remaining balance still to be used.

The Social Security part is on the top part, which is blue. You treat them differently. The info on the blue part goes on the SS worksheet.

If a RRRB taxpayer is receiving retirement benefits, then his or her spouse is usually also getting 1/2 of that benefit. If that spouse did not work for the railroad, then that is fully taxable and you will not see any contributions shown on that document. If a retired railroad employee dies, then the spouse takes over the recapture amount of the original recipient and continues to use those contributions until it is all used up. If ever.

Also, some states do not tax RRB retirement benefits shown on this form. Check to see if yours does.

If there is another 1099R for a pension benefit from the railroad he actually worked for (i.e, Union Pacific, Norfolk Southern, etc., not RRRB-1099R,) then that is fully taxable. Most of mine have both. And that is not excluded on the state return.

[ddoshan]

RRB 1099R's can get pretty confusing expecially if you have one that had not been done correctly in the past. If figuring the taxable portion of certain of the payments I seem to recall one having to use the Regular method to compute, rather than the Simplified method. But without having one in front of me I am just sort of guessing right now.
I have seen many of the RRB 1099R situations pretty much masacared in the past. So when you get a new client where things were not done properly initially they can be kind of a pain in the butt.

[taxmandan]

RRB 1099R's can get pretty confusing expecially if you have one that had not been done correctly in the past. If figuring the taxable portion of certain of the payments I seem to recall one having to use the Regular method to compute, rather than the Simplified method. But without having one in front of me I am just sort of guessing right now.
I have seen many of the RRB 1099R situations pretty much masacared in the past. So when you get a new client where things were not done properly initially they can be kind of a pain in the butt.

That's exactly the situation, new client brought last years return, there is no worksheet detailing the Simplified method or any other explanation why the Total Amount Received was excluded from income. The only worksheet shows that the information was entered on the regular 1099R screen in the software and that is what is confusing me. My software excludes about 10% of the amount from taxation and puts the rest on line 16b of the 1040.

Burke,
I don't read Pub 915 as saying that Contributory Amt not being taxable either, but client is reading it that way (Clients should not try to read Pubs, it hard enough for us to understand them) and says I should not include it in income. I will look again at the Simplified method and get his retirement date to see if that changes anything.

Thanks everyone for your help!!

[Burke]

The age at which he started receiving railroad retirement benefits is important, as that determines the factor that is used to figure the excluded amount. It's based on his life expectancy at that beginning point. You said you were inputting in Drake's RRB screen so it is probably calculating it correctly, assuming you have input all the necessary information.

PS. Tell your client he is looking in the wrong publication. Pub 915 is for the Social Security part of the Railroad Retirement Benefit. For the rest of the benefit (shown in the lower green portion of RRRB-199R) tell him to read Page 6, of Pub 575, Pension and Annuity Income, under Railroad Retirement Benefits. Note that if there are any amounts in the boxes titled Vested Dual Benefit or Supplemental Annuity Benefit, these are not part of the exclusion calculation. They are fully taxable. And not excluded on the state return.

[taxmandan]

Thanks for the additional information it really helps. I'm sure the numbers entered on the software are correct. and the excluded amount comes to $2,010 for 2012. On the 2011 return the entire $12k of benefits was excluded which doesn't seem right to me.

Dan

[Burke]

Oh, it's not right. You can bet on that. It should hit an alert at the IRS eventually and he may get a CP2000 letter. I wonder what he did in years prior to 2011?

[taxmandan]

Oh, it's not right. You can bet on that. It should hit an alert at the IRS eventually and he may get a CP2000 letter. I wonder what he did in years prior to 2011?

He retired in 2006, and every year is the same, none of his RRB is reported for taxes. The client is going to amend 2011 and 2010. He went through a traumatic audit some years ago (pre-retirement on his 2106) and he doesn't want so much a letter from theIRS.

It's good when the client wants to do right even when it means giving back some money. The irony of this whole thing is, they have no tax owed either way, but in those years their income was under reported they received refundable EITC due to her small W-2 and that is what they are going to have to give back. This year they are both over 65 so there is no more EITC and little future income tax on their retirements.
Dan

[taxea]

You should ask the TP for the documents that he received with his retirement. They have all the figures you will need to figure the safe harbor and the calculation needed to determine how much can be deducted for contributions made by TP to the plan. If you use the worksheet in the program the math is done for you and will tell how much the taxable amount is.

[oceanlovin'ea]

it seems to me in years long, long ago that when retirement started with railroad people they had to option to take all of their contributory contributions taken up front for the first few years until it was used up and then it would be all taxable. But that ended with the safe harbor method (I believe....you know it is April 2nd and what is left of our minds is like scrambled eggs). Now there is a worksheet in every tax program that helps determine the amount that is excludable each year. Their contributions were not pre-tax money. That is why some of their benefits are not taxed now.

I have had several railroad retirees during my time of tax preparation. But you have to do the calculations and take a portion as non-taxable each year.

Hope maybe I have helped...a little bit anyway.

Linda, EA