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General Instructions

Table of Contents

Purpose of Form

Use Form CT-1 to report taxes imposed by the Railroad Retirement Tax Act (RRTA). Use Form 941, Employer's QUARTERLY Federal Tax Return, or, if applicable, Form 944, Employer's ANNUAL Federal Tax Return, to report federal income taxes withheld from your employees' wages.

Who Must File

File Form CT-1 if you paid one or more employees compensation subject to tax under RRTA.

A payer of sick pay (including a third party) must file Form CT-1 if the sick pay is subject to Tier I railroad retirement taxes. Include sick pay payments on lines 7 through 10 of Form CT-1. Follow the reporting procedures for sick pay reporting in section 6 of Pub. 15-A, Employer's Supplemental Tax Guide.

Disregarded entities and qualified subchapter S subsidiaries.   Treasury Decision 9356, effective for wages paid on or after January 1, 2009, treats eligible single-owner disregarded entities and qualified subchapter S subsidiaries (Q Subs) as separate entities for employment tax purposes. Business owners can no longer elect to treat the related employment taxes as a liability of the owner. Instead, report the employment taxes on employment tax returns filed by the disregarded entity or Q Sub. For more information, see Disregarded entities and qualified subchapter S subsidiaries in the Introduction section of Pub. 15 (Circular E), Employer's Tax Guide. You can find T.D. 9356 at www.irs.gov/irb/2007-39_IRB/ar11.html.

Where To File

Send Form CT-1 to:

Department of the Treasury
Internal Revenue Service Center
Cincinnati, OH 45999-0007

When To File

File Form CT-1 by March 2, 2009.

Definitions

The terms “employer” and “employee” used in these instructions are defined in section 3231 and in its regulations.

Compensation

Compensation means payment in money, or in something that may be used instead of money, for services performed as an employee of one or more employers. It includes payment for time lost as an employee.

Group-term life insurance.   Include in compensation the cost of group-term life insurance over $50,000 you provide to an employee. This amount is subject to Tier I and Tier II taxes, but not to federal income tax withholding. Include this amount on your employee's Form W-2, Wage and Tax Statement.

  Former employees for whom you paid the cost of group-term life insurance over $50,000 must pay the employee's share of these taxes with their Form 1040. You are not required to collect those taxes. For former employees, you must include on Form W-2 the part of compensation that consists of the cost of group-term life insurance over $50,000 and the amount of railroad retirement taxes owed by the former employee for coverage provided after separation from service. For more information, see section 2 of Pub. 15-B.

Timing.   Compensation is considered paid when it is 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 limit or condition on how and when the payment is to be made.

  Any compensation paid during the current year that was earned in a prior year is taxable at the current year's tax rates; you must include the compensation with the current year's compensation on lines 1 through 10 of Form CT-1, as appropriate. An exception applies to nonqualified deferred compensation that was subject to Tier I and Tier II tax in a prior year. See the rules for Federal Insurance Contribution Act (FICA) purposes in Publication 15-A, Employers Supplemental Tax Guide.

Exceptions.   Compensation does not include:

  • Any benefit provided to or on behalf of an employee if at the time the benefit is provided it is reasonable to believe the employee can exclude such benefit from income. For information on what benefits are excludable, see Pub. 15-B. Examples of this type of benefit include:

    1. Certain employee achievement awards under
      section 74(c),

    2. Certain scholarship and fellowship grants under
      section 117,

    3. Certain fringe benefits under section 132, and

    4. Employer payments to an Archer MSA under section 220 or Health Savings Accounts (HSA) under section 223.

  • Stock transferred to an individual pursuant to the exercise of an incentive stock option (as defined in section 422(b)) or under an employee stock purchase plan (as defined in section 423(b)); or the disposition of such stock by the individual.

  • Payments made specifically for traveling or other bona fide and necessary expenses that meet the rules in the regulations under section 62.

  • Payments for services performed by a nonresident alien temporarily present in the United States as a nonimmigrant under subparagraphs (F), (J), (M), or (Q) of the Immigration and Nationality Act.

  • Compensation under $25 earned in any month by an employee in the service of a local lodge or division of a railway-labor-organization employer.

  • Payments made to or on behalf of an employee or dependents under a sickness or accident disability plan or a medical or hospitalization plan in connection with sickness or accident disability. This applies to Tier II taxes only.

    For purposes of employee and employer Tier I taxes, compensation does not include sickness or accident disability payments made:

    1. Under a workers' compensation law,

    2. Under section 2(a) of the Railroad Unemployment Insurance Act for days of sickness due to on-the-job injury,

    3. Under the Railroad Retirement Act, or

    4. More than 6 months after the calendar month the employee last worked.

Employer and Employee Taxes

Tax Rates and Compensation Bases

Tax Rates Compensation Paid in 2008
Tier I  
Employer and Employee: Each pay 6.2% of first $102,000
Tier I Medicare  
Employer and Employee: Each pay 1.45% of All
Tier II  
Employer: Pays 12.1% of first $75,900
Employee: Pays 3.9% of first $75,900

Employer Taxes

Employers must pay both Tier I and Tier II taxes. Tier I tax is divided into two parts. The amount of compensation subject to each tax is different. See the table above for the 2008 tax rates and compensation bases.

Concurrent employment.   If two or more related corporations that are rail employers employ the same individual at the same time and pay that individual through a common paymaster, which is one of the corporations, the corporations are considered a single employer. They have to pay, in total, no more in railroad retirement taxes than a single employer would. See Regulations section 31.3121(s)-1 for more information.

Successor employers.   Successor employers should see section 3231(e)(2)(C) and Pub. 15 (Circular E) to see if they can use the predecessor's compensation paid against the maximum compensation bases.

Employee Taxes

You must withhold the employee's part of Tier I and Tier II taxes. See the table above for the tax rates and compensation bases. See Tips below for information on the employee tax on tips.

Withholding or payment of employee tax by employer.   You must collect the employee railroad retirement tax from each employee by deducting it from the compensation on which employee tax is charged. If you do not withhold the employee tax, you must still pay the tax. If you withhold too much or too little tax because you cannot determine the correct amount, correct the amount withheld by an adjustment, credit, or refund according to the applicable regulations.

  If you pay the railroad retirement tax for your employee rather than withholding it, see Rev. Proc. 83-43,
1983-1 C.B. 778, for information on how to figure and report the proper amounts.

Tips.   An employee who receives tips must report them to you by the 10th of the month following the month the tips are received. Tips must be reported for every month, unless the tips for the month are less than $20.

  An employee must furnish you with a written (or electronic) statement of tips, signed by the employee, showing (a) his or her name, address, and social security number; (b) your name and address; (c) the month or period for which the statement is furnished; and (d) the total amount of tips. Pub. 1244, Employee's Daily Record of Tips and Report to Employer, a booklet for daily entry of tips and forms to report tips to employers, is available by calling 1-800-TAX-FORM (1-800-829-3676) or on the IRS website at www.irs.gov.

  Tips are considered to be paid at the time the employee reports them to you. You must collect both federal income tax and employee railroad retirement tax on tips reported to you from the employee's compensation (after deduction of employee railroad retirement and federal income tax related to the nontip compensation) or from other funds the employee makes available. Apply the compensation or other funds first to the railroad retirement tax and then to federal income tax. You do not have to pay the employer railroad retirement taxes on tips.

  If, by the 10th of the month after the month you received an employee's tip income report, you do not have enough employee funds available to deduct the employee tax, you no longer have to collect it. See section 6 in
Pub. 15 (Circular E).

Depositing Taxes

For Tier I and Tier II taxes, you are either a monthly schedule depositor or a semiweekly schedule depositor. Also, see the $2,500 Rule and the $100,000 Next-Day Deposit Rule under Exceptions to the Deposit Rules on page 4. The terms “monthly schedule depositor” and “semiweekly schedule depositor” identify which set of rules you must follow when a tax liability arises (for example, when you have a payday). They do not refer to how often your business pays its employees or to how often you are required to make deposits.

If you were a monthly schedule depositor for the entire year, please complete the Monthly Summary of Railroad Retirement Tax Liability in Part II of Form CT-1. If you were a semiweekly schedule depositor during any part of the year or you accumulated $100,000 or more on any day during a deposit period, you must complete Form 945-A, Annual Record of Federal Tax Liability.

Lookback Period

Before each year begins, you must determine the deposit schedule to follow for depositing Tier I and Tier II taxes for a calendar year. This is determined from the total taxes reported on your Form CT-1 for the calendar year lookback period. The lookback period is the second calendar year preceding the current calendar year. For example, the lookback period for calendar year 2009 is calendar
year 2007.

Use the table below to determine which deposit schedule to follow for 2009.

IF you reported taxes
for the lookback period (2007) of... 		THEN for 2009 you are a...
$50,000 or less Monthly schedule depositor
More than $50,000 Semiweekly schedule depositor

New employer.   If you are a new employer, your taxes for both years of the lookback period are considered to be zero. Therefore, you are a monthly schedule depositor for the first and second years of your business. However, see $100,000 Next-Day Deposit Rule on page 4.

Example.

Employer A reported Form CT-1 taxes as follows:

  • 2007 Form CT-1—$49,000

  • 2008 Form CT-1—$52,000

Employer A is a monthly schedule depositor for 2009 because its Form CT-1 taxes for its lookback period (calendar year 2007) were not more than $50,000. However, for 2010, Employer A is a semiweekly schedule depositor because A's taxes exceeded $50,000 for its lookback period (calendar year 2008).

Adjustments and the lookback rule.   To determine the amount of taxes paid for the lookback period, use only the Form CT-1 taxes reported on your original return, including any adjustments reported on that return for prior periods. Adjustments to a return for a prior period are not taken into account in determining the taxes for that prior period. See the instructions for Line 12 on page 5.

Example.

Employer B originally reported Form CT-1 taxes of $45,000 for the lookback period (2007).
B discovered in March 2009 that the tax during the lookback period (2007) was understated by $10,000 and will correct this error with an adjustment on Form CT-1 X filed for 2007.

B is a monthly schedule depositor for 2009 because the lookback period Form CT-1 taxes are based on the amount originally reported ($45,000), which was not more than $50,000. The $10,000 adjustment does not affect either 2007 taxes or 2009 taxes. See Treasury Decision 9405 at www.irs.gov/irb/2008-32_irb/ar13.html .

When To Deposit

Monthly Schedule Depositor

If you are a monthly schedule depositor, deposit employer and employee Tier I and Tier II taxes accumulated during a calendar month by the 15th day of the following month.

Example.   Employer C is a monthly schedule depositor with seasonal employees. C paid wages each Friday during February but did not pay any wages during March. Under the monthly schedule deposit rule, C must deposit the combined taxes for the February paydays by March 15.
C does not have a deposit requirement for March
(due by April 15) because no wages were paid and, therefore, C does not have a tax liability for the month.

Semiweekly Schedule Depositor

If you are a semiweekly schedule depositor, use the table below to determine when to make deposits.

Deposit Tier I and Tier II taxes
for payments made on... 		No later than...
Wednesday, Thursday, and/or Friday The following Wednesday
Saturday, Sunday, Monday,
and/or Tuesday 		The following Friday

Example.   Employer D, a semiweekly schedule depositor, pays wages on the last Saturday of each month. Although D is a semiweekly schedule depositor, D will deposit just once a month because D pays wages only once a month. The deposit, however, will be made under the semiweekly deposit schedule as follows: D's taxes for the January 31, 2009 (Saturday), payday must be deposited by February 6, 2009 (Friday). Under the semiweekly deposit rule, taxes arising on Saturday through Tuesday must be deposited by the following Friday.

The last day of the calendar year ends the semiweekly deposit period and begins a new one.

Deposits on Banking Days Only

If a deposit is required to be made on a day that is a nonbanking day, it is considered timely if it is made by the close of the next banking day. In addition to federal and state bank holidays, Saturdays and Sundays are treated as nonbanking days. For example, if a deposit is required to be made on Friday and Friday is a nonbanking day, the deposit will be considered timely if it is made by the following Monday (if Monday is a banking day).

Semiweekly schedule depositors will always have at least 3 banking days to make a deposit. If any of the 3 weekdays after the end of a semiweekly period is a nonbanking day, you have 1 additional day to deposit. For example, if you have Form CT-1 taxes accumulated for payments made on Friday and the following Monday is a nonbanking day, the deposit normally due on Wednesday may be made on Thursday (allowing 3 banking days to make the deposit).

Exceptions to the Deposit Rules

The two exceptions that apply to the above deposit rules are the:

  • $2,500 Rule, and

  • $100,000 Next-Day Deposit Rule.

$2,500 Rule.   If your total Form CT-1 taxes for the year are less than $2,500 and the taxes are fully paid with a timely filed Form CT-1, no deposits are required. However, if you are unsure that you will accumulate less than $2,500, deposit under the appropriate deposit rules so that you will not be subject to deposit penalties.

$100,000 Next-Day Deposit Rule.   If you accumulate taxes of $100,000 or more on any day during a deposit period, you must deposit the taxes by the next banking day regardless of whether you are a monthly or semiweekly schedule depositor.

  If you are a monthly schedule depositor and you accumulate $100,000 or more on any one day during the month, you become a semiweekly schedule depositor on the next day for the remainder of the calendar year and for the following year.

  Once a semiweekly schedule depositor accumulates $100,000 or more in a deposit period, it must stop accumulating at the end of that day and begin to accumulate anew on the next day. The following example explains this rule.

Example of $100,000 Next-Day Deposit Rule.


Employer E is a semiweekly schedule depositor. On Monday, E accumulates taxes of $110,000 and must deposit this amount by Tuesday, the next banking day. On Tuesday, E accumulates additional taxes of $30,000. Because the $30,000 is not added to the previous $110,000, E must deposit the $30,000 by Friday using the semiweekly deposit schedule.

Example of $100,000 Next-Day Deposit Rule during the first year of business.

Employer F started its business on January 30, 2009. Because this was the first year of its business, its Form CT-1 taxes for its lookback period (2007) are considered to be zero, and F is a monthly schedule depositor. On February 2, F paid compensation for the first time and accumulated taxes of $40,000. On February 6, F paid compensation and accumulated taxes of $60,000, bringing its total accumulated (undeposited) taxes to $100,000. Because F accumulated $100,000 or more on February 6 (Friday), F must deposit the $100,000 by February 9 (Monday), the next banking day. F became a semiweekly schedule depositor on February 7. F will be a semiweekly schedule depositor for the rest of 2009 and
for 2010.

Example of when $100,000 Next-Day Deposit Rule does not apply.

Employer G, a semiweekly schedule depositor, accumulated taxes of $95,000 on a Tuesday (of a Saturday-through-Tuesday deposit period) and accumulated $10,000 on Wednesday (of a Wednesday-through-Friday deposit period). Because the $10,000 was accumulated in a deposit period different from the one in which the $95,000 was accumulated, the $100,000 Next-Day Deposit Rule does not apply. Thus, G must deposit $95,000 by Friday and $10,000 by the following Wednesday.

How To Make Deposits

In general, you must deposit railroad retirement taxes with an authorized financial institution.

Electronic deposit requirement.   You must make electronic deposits of all depository taxes (such as employment tax, excise tax, and corporate income tax) using the Electronic Federal Tax Payment System (EFTPS) in 2009 if:

  • The total of deposits of such taxes in 2007 was more than $200,000 or

  • You were required to use EFTPS in 2008.

  If you are required to use EFTPS and use Form 8109 (see below) instead, you may be subject to a 10% penalty. If you are not required to use EFTPS, you may participate voluntarily. To enroll in or get more information about EFTPS, visit the EFTPS website at www.eftps.gov or call 1-800-555-4477.

Depositing on time.

For deposits made by EFTPS to be on time, you must initiate the transaction at least 1 business day before the date the deposit is due.

Use of Form 8109.   If you are not making electronic deposits (explained above), use Form 8109, Federal Tax Deposit Coupon, with each deposit to indicate the type of tax deposited. To avoid a possible penalty, use an authorized financial institution; do not mail your deposit to the IRS. Records of your deposits will be sent to the IRS for crediting to your business accounts.

Accuracy of Deposits Rule.   You are required to deposit 100% of your railroad retirement taxes on or before the deposit due date. However, penalties will not be applied for depositing less than 100% if both of the following conditions are met:

  1. Any deposit shortfall does not exceed the greater of $100 or 2% of the amount of taxes otherwise required to be deposited, and

  2. The deposit shortfall is paid or deposited by the shortfall makeup date for each type of depositor as described below.

    • Monthly schedule depositor. Deposit the shortfall or pay it with your return by the due date of Form CT-1. You may pay the shortfall with Form CT-1 even if the amount is $2,500 or more.

    • Semiweekly schedule depositor. Deposit the shortfall by the earlier of the first Wednesday or Friday that comes on or after the 15th of the month following the month in which the shortfall occurred or the due date of Form CT-1. For example, if a semiweekly schedule depositor has a deposit shortfall during January 2009, the shortfall makeup date is February 18, 2009 (Wednesday).

Penalties and Interest

The law provides penalties for failure to file a return, late filing of a return, late payment of taxes, failure to make deposits, or late deposits unless reasonable cause is shown. Interest is charged on taxes paid late at the rate set by law. For more information, see Pub. 15 (Circular E).

Order in which deposits are applied.   Generally, tax deposits are applied first to the most recent tax liability within the specified tax period to which the deposit relates. If you receive a failure to deposit penalty notice, you may designate how your payment is to be applied in order to minimize the amount of the penalty. You must respond within 90 days of the date of the notice. Follow the instructions on the notice you received. See Rev. Proc. 2001-58 for more information. You can find Rev. Proc. 2001-58 on page 579 of Internal Revenue Bulletin 2001-50 at www.irs.gov/pub/irs-irbs/irb01-50.pdf.

Trust fund recovery penalty.   If taxes that must be withheld are not withheld or are not deposited or paid to the United States Treasury, the trust fund recovery penalty may apply. The penalty is 100% of the unpaid taxes. This penalty may apply to you if these unpaid taxes cannot be immediately collected from the employer or business. The trust fund recovery penalty may be imposed on all persons who are determined by the IRS to be responsible for collecting, accounting for, and paying over these taxes, and who acted willfully in not doing so. For more information, see Pub. 15 (Circular E).

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