Does My State Tax My Railroad Retirement?

Welcome to another rainy edition of the Highball Advisors Railroad Retirement Mailbag! I’m John McNamara with Highball Advisors, coming to you from Waycross, Georgia, where it rains... pretty much all the time!

Today’s question comes from Michael H., who asks, “Are there any states that tax Railroad Retirement? I live in Minnesota, where it’s probably snowing right now.”

Great question, Michael! Here’s the deal: Not all states can tax Railroad Retirement income. Specifically, Tier 1 and Tier 2 benefits aren’t subject to state taxes. While the federal government can tax those benefits, states generally can’t. However, there are nine states that do tax Social Security benefits, which is similar to how Tier 1 works. This might be where the confusion comes in—many CPAs mistakenly think that because Tier 1 is like Social Security, it can be taxed by the state. Minnesota happens to be one of those states that does tax Social Security, so it’s possible your accountant is thinking the same applies to Tier 1.

For more details, check out my video on "Taxes on Your Railroad Retirement Annuity" — it covers a lot of the ins and outs of how your benefits might be taxed.

I hope this helps, Michael! Feel free to send in your questions, and I’ll make sure to shoot another video from a warmer location next time. Until then, everyone, stay safe, stay on track, and take care. So long!

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Disclaimer: This article is provided for general information and illustration purposes only. Nothing contained in the material constitutes tax advice, a recommendation for purchase or sale of any security, or investment advisory services. Highball Advisors encourages you to consult a financial planner, accountant, and/or legal counsel for advice specific to your situation. Reproduction of this material is prohibited without written permission from Highball Advisors, and all rights are reserved from Highball Advisors, and all rights are reserved.