Railroad Taxes 101: RRTA, Tier I, Tier II, and What Makes Railroad Payroll Different

Most payroll professionals encounter FICA their entire career. Railroad payroll teams deal with something different: the Railroad Retirement Tax Act, or RRTA. Instead of Social Security and Medicare, railroad employers and employees pay Tier I and Tier II taxes that fund the Railroad Retirement system — a separate federal retirement program for railroad workers administered by the Railroad Retirement Board.

The RRTA applies to employers and employees covered by the Railroad Retirement Act. That covers most class I, II, and III railroads and rail-related industries under RRB jurisdiction. If your workforce falls under the RRTA, this guide covers the tax structure, wage bases, and filing requirements that differ from standard payroll.

Tier I: The FICA Equivalent

Tier I taxes function similarly to FICA — they fund retirement and disability benefits equivalent to Social Security and Medicare. The Tier I rate structure mirrors FICA: the Tier I employee rate is 7.65% (6.2% retirement equivalent plus 1.45% Medicare equivalent), and the employer matches at 7.65%. Tier I uses the same wage base as Social Security for the retirement component ($176,100 in 2025) and has no wage base cap for the Medicare-equivalent component.

The Additional Medicare Tax of 0.9% also applies to railroad workers earning above $200,000, using the same threshold and mechanics as under FICA. Railroad employees who have also paid Social Security taxes in non-railroad employment coordinate their coverage — the railroad retirement system and Social Security coordinate benefits for workers who have both covered railroad and non-railroad employment.

Tier II: The Pension Component

Tier II is what makes railroad payroll genuinely different from standard FICA payroll. There’s no Social Security equivalent — Tier II is a separate pension tax that funds the supplemental retirement benefits railroad workers receive on top of the Social Security-equivalent Tier I benefits. Tier II rates differ between employers and employees and are set annually by the Railroad Retirement Board based on fund solvency.

The Tier II wage base is separate from and lower than the Social Security wage base. For 2025, the Tier II wage base is $118,800. Once an employee’s railroad compensation exceeds this amount in a calendar year, no additional Tier II tax applies to their wages for the rest of the year. The rates themselves are set by the RRB — check the current year’s rates directly from the RRB rather than relying on prior-year figures, since they adjust based on fund balance projections.

What Counts as Compensation Under the RRTA

The definition of compensation under the RRTA is similar to but not identical to the FICA wage definition. Generally, compensation includes all remuneration for covered services — wages, salaries, tips (for some covered occupations), and most other forms of pay. Certain items excluded from FICA wages may also be excluded from RRTA compensation, and some items taxable under FICA may be treated differently under the RRTA.

One important distinction: sick pay under a railroad employer’s plan is generally treated as compensation under the RRTA, which means Tier I and Tier II taxes apply to sick pay in ways that differ from standard FICA treatment of third-party sick pay. If your benefit administration involves employer-paid sick plans, confirm the RRTA treatment before assuming it mirrors FICA.

Filing Requirements: Form CT-1 Instead of Form 941

Railroad employers file Form CT-1 (Employer’s Annual Railroad Retirement Tax Return) instead of Form 941. CT-1 is an annual return, not quarterly — one significant difference from standard payroll filing. However, railroad employers still make periodic deposits of RRTA taxes on the same deposit schedule that applies to FICA taxes (monthly or semi-weekly based on lookback period), and the $100,000 next-day rule applies as well.

Employees receive a Form W-2 with Tier I and Tier II tax amounts reported in specific boxes — Box 14 is commonly used for Tier II, while Tier I taxes appear in the standard FICA boxes (Boxes 4 and 6). Verify the correct W-2 reporting format with your payroll provider or tax advisor, since the specific box assignments have been subject to guidance updates.

Railroad Unemployment Insurance: Also Different

Railroad workers covered by the RRTA are also covered by the Railroad Unemployment Insurance Act, not state unemployment insurance systems. Railroad unemployment is administered federally by the Railroad Retirement Board, not by state unemployment agencies. This means railroad employers pay a federal railroad unemployment tax — not FUTA, not SUTA — and railroad employees who lose their jobs file for unemployment benefits through the RRB, not through the state UI office.

The railroad unemployment tax rate and wage base are set separately from FUTA and SUTA. Employers with good experience ratings pay lower rates; those with higher claim experience pay more — similar in concept to experience-rated SUTA, but administered through the RRB system.

Frequently Asked Questions

This guide reflects publicly available product information and independent reviewer data (G2, Capterra, Trustpilot, Yelp, Better Business Bureau, Reddit, Software Advice, GetApp) as of 2026. Feature availability and pricing may vary by plan. Contact each provider for current details.

Disclaimer: Any product roadmap or future plans provided herein are for informational purposes only. They do not represent a commitment to deliver any material, code, feature, or functionality. Plans may change without notification. The development, release and timing of any features or functionality described remain at the sole discretion of Netchex, its affiliates, and partners. Netchex does not give legal, tax, or accounting advice. You are responsible for ensuring your use of Netchex product meets your individual business and compliance requirements.

Print this page