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How Do Railroad Retirement and Social Security Payroll Taxes Compare? Thumbnail

How Do Railroad Retirement and Social Security Payroll Taxes Compare?

Tier 1 Tier 2 Video Taxes


Do you pay too much in Railroad Retirement taxes? Where does the money go?

Welcome everyone to another edition of the Highball Advisors Railroad Retirement whiteboard. My name's John McNamara of Highball Advisors, and today we're going to talk about what comes out of your paycheck when you receive it from the railroad. So payroll taxes are what we talking about, and then what we'll do is we'll compare it to Social Security. Because you always say, ah, I pay so much in taxes. You hear that a lot. 

So Social Security, Tier 1 and Social Security are the same or basically the same thing. You pay 7.65% off your income up to, well, you pay 6.2% up to 147,000, and then the Medicare tax kicks in which is another 1.45%, no limit on that. However, when you get up to 200,000, they tack on another .9%, all right? So that's the Tier 1/Social Security tax.

And then the railroaders have Tier 2 tax, or as I like to say, contribution, I'll do another video on why I call it that later. But 4.9% on earnings up to 109,200. So that stops, that Tier 2 tax stops after 109,200.

As a sidebar, the railroad or employers pay 13.1% on each employee, and you guys kick in 4.9%. So let's go through an example and see what that looks like. 

So an employee making $147,000 a year on the railroad pay $11,245.50 on Tier 1, and then Tier 2, $5,350.80. Remember that stops at this number, 109,200. So their total tax would be $16,596.30. As opposed to somebody in Social Security, they're going to pay $11,245.50. So there's your difference. It's all in Tier 2. And you're saying to yourself, that's not right.

Well, Tier 2, I'd pay that tax all day if I could. I have a lot of videos on why I really think Tier 2 is great. And as an additional note railroads, when you look at each employee on an employee making $147,000, the railroad is actually paying $25,550 significantly more than even the employee, and that's because of the Tier 2 that they're kicking in also. So that gives you a little hint on why I like Tier 2. If somebody's going to carry a lot of the freight versus what I'm putting into it, sign me up for that. 

So I hope you found this helpful to understand what your payroll taxes look like. If you need any help about that, feel free to reach out to me, put something in the comment section. I'll comment on that. Give a little more guidance on that. Feel free to reach out to me. If you want to go through the boarding [inaudible 00:03:08] retirement assessment, not sure how much longer I'll be doing those, but check those out. Please subscribe to my YouTube channel, click on the notification bell to get the latest. And until next time everyone, please stay safe, stay on track, and take care so long everybody. Bye.


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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.