TN 13 (08-10)

RS 01804.030 SEI and Railroad Compensation


Section 1402(b) IRC

A. Policy

Beginning 1/1/75, railroad compensation reduces the amount of SEI for tax purposes. Since there was no corresponding change to the Social Security Act only covered wages can be used to reduce SEI. Therefore, the amount of SEI subject to self-employment tax may be lower than the amount of SEI that could be credited to the earnings record when the self-employed person also received railroad compensation.

B. Procedure

Consider the following in determining the correct amount of SEI:

Be alert to the possibility of incorrect SEI postings whenever a worker has both SEI and railroad compensation.

Correct posting errors via Item Correction (IC) See MSOM EM 010.001 for a discussion of Item Corrections. Use IC to increase the SEI to the smaller of:

  • NESE, or

  • the contribution base minus any RRB and Social Security wages. Also prepare 374 listing code.

Do not notify IRS since the self-employment taxes were figured correctly.

IMPORTANT: The statute of limitations does not preclude correction of the earnings records since SSA is conforming its records to a timely filed tax return. See RS 02201.008 for a discussion of exceptions to the statute of limitations.

C. Example

Casey, a career railroad worker, had NESE of $110,000, wages of $2,000, and railroad compensation of $3,000 in 2007. His earnings record shows wages of $2,000 and SEI of $95,500, for the maximum creditable amount of $97,500. However, only $92,500 of the SEI is subject to self-employment tax because the $3,000 in RR compensation can be deducted as well as the $2,000 in wages ($2,000 and $3,000 from $97,500 equals $92,500). Casey’s earnings record should be corrected to show only $92,500 SEI plus $2,000 wages.

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RS 01804.030 - SEI and Railroad Compensation - 08/19/2010
Batch run: 07/03/2014