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January 1, 2009, may consider wages paid by the owner to

3. Certain fringe benefits under section 132, and

employees of the disregarded entity during the calendar

4. Employer payments to an Archer MSA under section

year of the switch as having been paid by the disregarded

220 or Health Savings Accounts (HSA) under section 223.

•

entity for purposes of determining whether wages paid to the

Stock transferred to an individual pursuant to the exercise

disregarded entity’s employees have reached the

of an incentive stock option (as defined in section 422(b)) or

compensation bases. All taxpayers must switch to the

under an employee stock purchase plan (as defined in

second method for wages paid after December 31, 2008,

section 423(b)); or the disposition of such stock by the

and the disregarded entity will be responsible for its own

individual.

•

employment tax obligations on wages paid after that date.

Payments made specifically for traveling or other bona

fide and necessary expenses that meet the rules in the

You can find T.D. 9356 on page 675 of Internal Revenue

regulations under section 62.

Bulletin 2007-39 at

•

Payments for services performed by a nonresident alien

Where To File

temporarily present in the United States as a nonimmigrant

under subparagraphs (F), (J), (M), or (Q) of the Immigration

Send Form CT-1 to:

and Nationality Act.

•

Department of the Treasury

Compensation under $25 earned in any month by an

Internal Revenue Service Center

employee in the service of a local lodge or division of a

Cincinnati, OH 45999-0007

railway-labor-organization employer.

•

Payments made to or on behalf of an employee or

When To File

dependents under a sickness or accident disability plan or a

medical or hospitalization plan in connection with sickness

File Form CT-1 by February 29, 2008.

or accident disability. This applies to Tier II taxes only.

Definitions

For purposes of employee and employer Tier I

The terms “employer” and “employee” used in these

taxes, compensation does not include sickness or

instructions are defined in section 3231 and in its

accident disability payments made:

CAUTION

regulations.

1. Under a workers’ compensation law,

Compensation

2. Under section 2(a) of the Railroad Unemployment

Compensation means payment in money, or in something

Insurance Act for days of sickness due to on-the-job injury,

that may be used instead of money, for services performed

3. Under the Railroad Retirement Act, or

as an employee of one or more employers. It includes

4. More than 6 months after the calendar month the

payment for time lost as an employee.

employee last worked.

Group-term life insurance. Include in compensation the

cost of group-term life insurance over $50,000 you provide

Employer and Employee Taxes

to an employee. This amount is subject to Tier I, Tier I

Medicare, and Tier II taxes, but not to federal income tax

Tax Rates and Compensation Bases

withholding. Include this amount on your employee’s

Form W-2, Wage and Tax Statement.

Tax Rates

Compensation Paid in 2007

Former employees for whom you paid the cost of

group-term life insurance over $50,000 must pay the

Tier I

employee’s share of these taxes with their Form 1040. You

are not required to collect those taxes. For former

Employer and Employee: Each pay 6.2% of first . . . . . . .

$97,500

employees, you must include on Form W-2 the part of

Tier I Medicare

compensation that consists of the cost of group-term life

insurance over $50,000 and the amount of railroad

Employer and Employee: Each pay 1.45% of . . . . . . . . .

All

retirement taxes owed by the former employee for coverage

Tier II

provided after separation from service. For more

information, see section 2 of Pub. 15-B.

Employer: Pays 12.1% of first . . . . . . . . . . . . . . . . . . .

$72,600

Timing. Compensation is considered paid when it is

Employee: Pays 3.9% of first . . . . . . . . . . . . . . . . . . .

$72,600

actually paid or when it is constructively paid. It is

constructively paid when it is set apart for the employee or

credited to an account the employee can control without any

Employer Taxes

limit or condition on how and when the payment is to be

Employers must pay both Tier I and Tier II taxes. Tier I tax is

made.

divided into two parts. The amount of compensation subject

Any compensation paid during the current year that was

to each tax is different. See the table above for the 2007 tax

earned in a prior year is taxable at the current year’s tax

rates and compensation bases.

rates; you must include the compensation with the current

Concurrent employment. If two or more related

year’s compensation on lines 1 through 10 of Form CT-1, as

corporations that are rail employers employ the same

appropriate.

individual at the same time and pay that individual through a

Exceptions. Compensation does not include:

•

common paymaster, which is one of the corporations, the

Any benefit provided to or on behalf of an employee if at

corporations are considered a single employer. They have

the time the benefit is provided it is reasonable to believe

to pay, in total, no more in railroad retirement and Medicare

the employee can exclude such benefit from income. For

taxes than a single employer would. See Regulations

information on what benefits are excludable, see Pub. 15-B.

section 31.3121(s)-1 for more information.

Examples of this type of benefit include:

1. Certain employee achievement awards under

Successor employers. Successor employers should see

section 74(c),

section 3231(e)(2)(C) and Pub. 15 (Circular E) to see if they

2. Certain scholarship and fellowship grants under

can use the predecessor’s compensation paid against the

section 117,

maximum compensation bases.

-2-

Instructions For Form Ct-1 - Employer'S Annual Railroad Retirement Tax Return - Internal Revenue Service - 2007 Page 2

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