Railroad Retirement Benefits are a type of retirement benefit paid to — as the name suggests — people who worked for the railroad.

There are two types of Railroad Retirement Benefits: Tier I and Tier II.

Tier I

Tier I benefits are equivalent to Social Security benefits and are taxed in the same way.

Tier II

Tier II benefits are equivalent to pension distributions and are taxed in the same way.  Tier II amounts might be fully taxable, or might be partially taxable if the taxpayer has basis in their Tier II account. If it’s partially taxable, then the calculation follows the same convention as a regular pension distribution, using either the “simplified method” or the “general method.”

These “Glossary” entries are designed to be short and simple, so we won’t go any further down this road today. IRS Publication 575 is a good resource. Railroad benefits are discussed starting on page 6.

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