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Tips are considered to be paid at the time the employee

Payments made specifically for traveling or other bona fide

reports them to you. You must collect both income tax and

and necessary expenses that meet the rules in the regulations

employee railroad retirement tax on tips reported to you from

under section 62.

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the employee’s compensation (after deduction of employee

Payments for service performed by a nonresident alien

railroad retirement and income tax) or from other funds the

temporarily present in the United States as a nonimmigrant

employee makes available. Apply the compensation or other

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

funds first to the railroad retirement tax and then to income tax.

Nationality Act.

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You do not have to pay the employer railroad retirement taxes

Compensation under $25 earned in any month by an

on tips.

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

railway-labor-organization employer.

Stop collecting the 6.2% Tier I employee tax when the

employee’s wages and tips reach the maximum for the year

Employer and Employee Taxes

($84,900 for 2002). However, your liability for Tier I employer

tax on compensation continues until the compensation, not

Tax Rates and Compensation Bases

including tips, totals $84,900 for the year.

If, by the 10th of the month after the month you received an

Tax Rates

Compensation Paid in 2002

employee’s tip income report, you do not have enough

employee funds available to deduct the employee tax, you no

Tier I

longer have to collect it. See section 6 in Circular E (Pub. 15).

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

$84,900

Depositing Taxes

Tier I Medicare

For Tier I and Tier II taxes, you are either a monthly schedule

depositor or a semiweekly schedule depositor. There are also

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

All

two special rules explained on page 3 — the $2,500 rule and

the $100,000 next-day deposit rule. The terms “monthly

Tier II

schedule depositor” and “semiweekly schedule depositor” do

not refer to how often your business pays its employees, or to

Employer: Pays 15.6% of first . . . . . . . . . . . . . . . . . . .

$63,000

how often you are required to make deposits. The terms identify

which set of rules you must follow when a tax liability arises

Employee: Pays 4.9% of first . . . . . . . . . . . . . . . . . . .

$63,000

(e.g., when you have a payday).

Before each year begins, you must determine which deposit

Employer taxes. Employers must pay both Tier I and Tier II

schedule to follow. Your deposit schedule for the year is

taxes. Tier I tax is divided into two parts. The amount of

determined from the total Form CT-1 taxes reported in the

compensation subject to each tax is different. See the table

lookback period.

above for the tax rates and compensation bases.

Lookback period. Which deposit schedule you must follow for

Concurrent employment. If two or more related

depositing Tier I and Tier II taxes for a calendar year is

corporations that are rail employers employ the same individual

determined from the total taxes reported on your Form CT-1 for

at the same time and pay that individual through a common

the calendar year lookback period. The lookback period is the

paymaster, which is one of the corporations, the corporations

second calendar year preceding the current calendar year. For

are considered a single employer. They have to pay, in total, no

example, the lookback period for calendar year 2003 is

more in railroad retirement and Medicare taxes than a single

calendar year 2001.

employer would. See Regulations section 31.3121(s)-1 for more

information.

Use the table below to determine which deposit schedule to

Successor employers. Successor employers should see

follow for the current year.

section 3231(e)(2)(C) and Circular E, Employer’s Tax Guide

(Pub. 15), to see if they can use the predecessor’s

IF you reported taxes

THEN you are a...

compensation paid against the maximum compensation bases.

for the lookback period of...

Employee taxes. You must withhold the employee’s part of

Tier I and Tier II taxes. See the table above for the tax rates

$50,000 or less

Monthly schedule depositor

and compensation bases. See Tips below for information on

the employee tax on tips.

More than $50,000

Semiweekly schedule depositor

Withholding or payment of employee tax by employer.

You must collect the employee railroad retirement tax from

New employer. If you are a new employer, your taxes for

each employee by deducting it from the compensation on which

the lookback period are considered to be zero for the first

employee tax is charged. If you do not withhold the employee

calendar year of your business. Therefore, you are a monthly

tax, you must still pay the tax. If you withhold too much or too

schedule depositor for the first year of your business.

little tax because you cannot determine the correct amount,

Example. Employer A reported Form CT-1 taxes as follows:

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correct the amount withheld by an adjustment, credit, or refund

2001 Form CT-1 — $49,000

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according to the regulations relating to the RRTA.

2002 Form CT-1 — $52,000

If you pay the railroad retirement tax for your employee

Employer A is a monthly schedule depositor for 2003

rather than withholding it, see Rev. Proc. 83-43, 1983-1 C.B.

because its Form CT-1 taxes for its lookback period (calendar

778, for information on how to figure and report the proper

year 2001) were not more than $50,000. However, for 2004,

amounts.

Employer A is a semiweekly schedule depositor because A’s

Tips. An employee who receives tips must report them to you

taxes exceeded $50,000 for its lookback period (calendar year

2002).

by the 10th of the month following the month the tips are

received. Tips must be reported for every month, unless the tips

Adjustments and the lookback rule. To determine your Form

for the month are less than $20.

CT-1 taxes for the lookback period, use only the Form CT-1

An employee must furnish you with a written statement of

taxes you reported on your original return. If you made

tips, signed by the employee, showing (a) his or her name,

adjustments to correct errors on previously filed Forms CT-1,

address, and social security number, (b) your name and

these adjustments do not affect the amount of the Form CT-1

address, (c) the month or period for which the statement is

taxes for purposes of the lookback rule. If you report

furnished, and (d) the total amount of tips. Pub. 1244,

adjustments on your current Form CT-1 to correct errors on

Employee’s Daily Record of Tips and Report to Employer, a

prior year returns, include these adjustments as part of your

booklet for daily entry of tips and forms to report tips to

Form CT-1 taxes for the current year. If you filed Form 843,

employers, may be obtained from the IRS.

Claim for Refund and Request for Abatement, to claim a refund

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Instructions For Form Ct-1 - Employer'S Annual Railroad Retirement Tax Return - 2002 Page 2

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