General Instructions

Purpose of Form CT-1

These instructions give you some background information about Form CT-1. They tell you who must file Form CT-1, how to complete it line by line, and when and where to file it.

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 and other compensation.

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 1 railroad retirement taxes. Include sick pay payments on lines 8–11 and, if the withholding threshold is met, line 12 of Form CT-1. Follow the reporting procedures for sick pay reporting in section 6 of Pub. 15-A.

Disregarded entities and qualified subchapter S subsidiaries (QSubs).   Eligible single-owner disregarded entities and QSubs are treated as separate entities for employment tax purposes. Eligible single-member entities that have not elected to be taxed as corporations must report and pay employment taxes on compensation paid to their employees using the entities' own names and EINs. See Regulations sections 1.1361-4(a)(7) and 301.7701-2(c)(2)(iv).

Where To File

Send Form CT-1 to:

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

When To File

File Form CT-1 by March 2, 2015.

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. A few exceptions are described below under Exceptions.

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 1 and Tier 2 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, U.S. Individual Income Tax Return. 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 and the General Instructions for Forms W-2 and W-3.

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 substantial 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 Form CT-1, lines 1–12, as appropriate. An exception applies to nonqualified deferred compensation that was subject to Tier 1 and Tier 2 tax in a prior year. See the rules for social security, Medicare, and FUTA taxes under Nonqualified Deferred Compensation Plans in Pub. 15-A.

Exceptions.   Compensation does not include:
  • Certain benefits provided to or on behalf of an employee if at the time the benefits are provided it is reasonable to believe the employee can exclude such benefits 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 2 taxes only.

    For purposes of employee and employer Tier 1 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 an 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 2014
Tier 1  
Employer and Employee: Each pay 6.2% of first $117,000
Tier 1 Medicare  
Employer and Employee: Each pay 1.45% of All
Tier 1 Employee Additional Medicare Tax withholding      
Employee: Pays 0.9% on compensation exceeding     $200,000
Tier 2  
Employer: Pays 12.6% of first $87,000
Employee: Pays 4.4% of first $87,000

Employer Taxes

Employers must pay both Tier 1 and Tier 2 taxes, except for Tier 1 Employee Additional Medicare Tax. Tier 1 tax is divided into two parts. The amount of compensation subject to each tax is different. See the table above for the 2014 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 that 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 1 and Tier 2 taxes. See the table under Employer and Employee Taxes, earlier, 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 withholding it from the compensation on which the employee tax is computed. 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, the amount of the employee's compensation is increased by the amount of that tax. See Rev. Proc. 83-43,1983-1 C.B. 778, for information on how to figure and report the proper amounts.

Tips.   Your employee must report cash tips to you by the 10th day of the month following the month the tips are received. The report should include charged tips you paid over to the employee for charge customers, tips the employee received directly from customers, and tips received from other employees under any tip-sharing arrangement. Both directly and indirectly tipped employees must report tips to you. Cash tips must be reported for every month, unless the cash tips for the month are less than $20. Stop collecting the Tier 1 Employee tax when his or her compensation and tips for tax year 2014 reach $117,000. Collect the Tier 1 Employee Medicare tax for the whole year on all compensation and tips. Collect the Tier 1 Employee Additional Medicare Tax withholding on compensation and tips that exceed $200,000 for the calendar year. Include all tips your employees reported to you even if you were unable to withhold the employee's share of tax.

  An employee must furnish you with a written (or electronic) statement of cash 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 cash 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 at IRS.gov or by calling 1-800-TAX-FORM (1-800-829-3676).

  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 cash tips reported to you from the employee's compensation (after withholding 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 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 withhold the employee tax, you may report the excess amount without withholding the related tax. Report uncollected Tier 1 Employee tax, Tier 1 Employee Medicare tax, Tier 1 Employee Additional Medicare Tax withholding, and Tier 2 Employee tax on tips on line 14. See section 6 in Pub. 15 (Circular E).

Depositing Taxes

For Tier 1 and Tier 2 taxes, you are either a monthly schedule depositor or a semiweekly schedule depositor. However, see the $2,500 Rule and the $100,000 Next-Day Deposit Rule under Exceptions to the Deposit Rules, later. 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 1 and Tier 2 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 2015 is calendar year 2013.

Use the table below to determine which deposit schedule to follow for 2015.

IF you reported taxes  
for the lookback period (2013) of...
THEN for 2015 you are a...
$50,000 or less Monthly schedule depositor
More than $50,000 Semiweekly schedule depositor

Example.

Employer A reported Form CT-1 taxes as follows:

  • 2013 Form CT-1—$49,000

  • 2014 Form CT-1—$52,000

Employer A is a monthly schedule depositor for 2015 because its Form CT-1 taxes for its lookback period (calendar year 2013) were not more than $50,000. However, for 2016, Employer A is a semiweekly schedule depositor because A's taxes exceeded $50,000 for its lookback period (calendar year 2014).

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, later.

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. Adjustments to a return for a prior period are not taken into account in determining the taxes for that prior period.

Example.

Employer B originally reported Form CT-1 taxes of $45,000 for the lookback period (2013). B discovered in March 2015 that the tax during the lookback period (2013) was understated by $10,000 and will correct this error with an adjustment on Form CT-1 X filed for 2013.

B is a monthly schedule depositor for 2015 because the lookback period Form CT-1 taxes are based on the amount originally reported ($45,000), which was not more than $50,000. For purposes of the lookback rule, the $10,000 adjustment does not affect either 2013 taxes or 2015 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 1 and Tier 2 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 compensation each Friday during March but did not pay any compensation during April. Under the monthly schedule deposit rule, C must deposit the combined taxes for the March paydays by April 15. C does not have a deposit requirement for April (due by May 15) because no compensation was 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 1 and Tier 2 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 compensation on the last Saturday of each month. Although D is a semiweekly schedule depositor, D will deposit just once a month because D pays compensation only once a month. The deposit, however, will be made under the semiweekly deposit schedule as follows: D's taxes for the May 30, 2015 (Saturday), payday must be deposited by June 5, 2015 (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 Business Days Only

If a deposit is required to be made on a day that is not a business day, the deposit is considered to have been made timely if it is made by the close of the next business day. A business day is any day other than a Saturday, Sunday, or legal holiday. For example, if a deposit is due on a Friday and Friday is a legal holiday, the deposit will be considered timely if it is made by the following Monday (if that Monday is a business day). The term “legal holiday” for deposit purposes includes only those legal holidays in the District of Columbia. For a list of legal holidays, see Pub. 15 (Circular E).

Semiweekly schedule depositors will always have at least 3 business days to make a deposit. If any of the 3 weekdays after the end of a semiweekly period is a legal holiday, 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 legal holiday, the deposit normally due on Wednesday may be made on Thursday (allowing 3 business 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 undeposited taxes of $100,000 or more on any day during a deposit period, you must deposit the taxes by the next business 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 examples explain 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 business 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 May 1, 2015. Because this was the first year of its business, its Form CT-1 taxes for its lookback period (2013) are considered to be zero, and F is a monthly schedule depositor. On May 2, F paid compensation for the first time and accumulated taxes of $40,000. On May 8, 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 May 8 (Friday), F must deposit the $100,000 by May 11 (Monday), the next business day. F became a semiweekly schedule depositor on May 9. F will be a semiweekly schedule depositor for the rest of 2015 and for 2016.

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.

Electronic Deposit Requirement

You must use EFT to make all federal tax deposits. Generally, an EFT is made using the Electronic Federal Tax Payment System (EFTPS). To get more information about EFTPS or to enroll in EFTPS, visit the EFTPS website at www.eftps.gov, or call 1-800-555-4477 or 1-800-733-4829 (TDD). Additional information about EFTPS is also available in Pub. 966.

For an EFTPS deposit to be on time, you must submit the deposit by 8 p.m. Eastern time the day before the date the deposit is due.

Same-day wire payment option.   If you fail to sumbit a deposit transaction on EFTPS by 8 p.m. Eastern time the day before the date a deposit is due, you can still make your deposit on time by using the Federal Tax Collection Service (FTCS). To use the same-day wire payment method, you will need to make arrangements with your financial institution ahead of time. Please check with your financial institution regarding availability, deadlines, and costs. Your financial institution may charge you a fee for payments made this way. To learn more about the information you will need to provide your financial institution to make a same-day wire payment, visit www.irs.gov/e-pay and click on Same-Day Wire Federal Tax Payments.

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.

  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 on or after the 15th of the month following the month in which the shortfall occurred. For example, if a semiweekly schedule depositor has a deposit shortfall during January 2015, the shortfall makeup date is February 18, 2015 (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, and 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).

If you receive a notice about a penalty after you file this return, reply to the notice with an explanation and we will determine if you meet reasonable-cause criteria. Do not attach an explanation when you file your return.

Use Form 843, Claim for Refund and Request for Abatement, to request abatement of assessed penalties or interest. Do not request abatement of assessed penalties or interest on Form CT-1 or Form CT-1 X.

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. 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, or paying over these taxes, and who acted willfully in not doing so. For more information, see Trust fund recovery penalty in section 11 of Pub. 15 (Circular E).


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