RRB to reduce Tier 2 Payroll Tax percentage in 2005

[Anonymous]

Railroad Retirement Tier II tax rate to decrease in 2005

The U.S. Railroad Retirement Board has announced that the Tier II railroad retirement payroll tax rate on both employees and employers will decrease in 2005. The reduction is a result of provisions of the Railroad Retirement and Survivors’ Improvement Act of 2001.

"This tax reduction is made possible by the change in investment practices for the Tier II funds negotiated by the railroads and the unions," said John Fleps, vice president, Labor Relations. "Rail labor and management structured a deal upon which this legislation was based, and, as we hoped it has produced a win-win situation for both railroad companies and all their employees."

The railroad retirement Tier II tax rate on employees will decrease by 0.5 percent, from 4.9 percent to 4.4 percent in 2005, and the rate on employers will also decrease by 0.5 percent, from 13.1 percent to 12.6 percent. The maximum amount of earnings subject to railroad retirement Tier II taxes will increase to $66,900 in 2005 from $65,100 in 2004.

Under the Railroad Retirement and Survivors’ Improvement Act of 2001, Tier II tax rates are determined annually based on the ratio of certain Railroad Retirement System asset balances to the sum of benefits and administrative expenses (the average account benefits ratio). The Act permits some of the Railroad Retirement System's assets to be invested in the same manner as is done by private multi-employer pension plans.

The railroad retirement Tier I payroll tax rate for the year 2005 remains at 7.65 percent. The railroad retirement Tier I tax rate is the same as the social security tax, and for withholding and reporting purposes is divided into 6.20 percent for retirement and 1.45 percent for Medicare hospital insurance.

The maximum amount of an employee's earnings subject to the 6.20 percent rate will increase to $90,000 in 2005 from $87,900 in 2004, but there is no maximum on earnings subject to the 1.45 percent Medicare rate. The increase in the amount of earnings subject to railroad retirement and social security taxes is based on indexing to increases in average national wages. - BNSF Today