REQUEST LETTER

02-006

DATE

NAME

ADDRESS

I was referred to you by one of the auditors; perhaps you can give us some guidance.

Suppose that a railroad employee is disabled before satisfying the normal age and service time requirements required for retirement under the Railroad Retirement Act. Until such employee attains minimum retirement age, his or her disability income will be reported on Line 7 of the current Federal Form 1040. Considering both Federal and Utah State Tax Codes and Regulations, is this railroad disability income excludable on Line 19 of Utah Form TC-40?

We appreciate your help in this matter.

RESPONSE LETTER

DATE

NAME

ADDRESS

Re: Whether or not Railroad disability income is excluded from income tax

Dear NAME,

You requested information regarding the taxability of railroad disability payments. According to your letter, your client is a railroad employee disabled prior to reaching the normal retirement age and service time requirements under the Railroad Retirement Act. Federal law requires railroad retirement income to be subtracted from state income for Utah income tax purposes. At issue, however, is whether railroad disability income must also be subtracted from state income for tax purposes.

Railroad disability income is separate and distinct from railroad retirement income for tax purposes. First, the United States of America Railroad Retirement Board has issued Form RB-1d (8-93), titled “Employee Disability Benefits”, which provides guidelines and qualifications for disability income for railroad workers. Under Part 2, Chapter 11of the guideline, the Board explains, “at age sixty-five, your entitlement to a disability annuity ends, and your entitlement to an age-and-service annuity begins.” Accordingly, the disability income received by your client is not retirement income.

Second, railroad disability income is reported on the wages and tips line on the Federal Tax Return (line 7, 1040 tax form). Federal tax law specifically provides that retirement income or pensions be reported on lines 15 and 16 of the 1040 form. Thus, railroad disability and retirement income are separate and distinct for federal tax reporting purposes.

For these reasons, Utah considers that federal railroad disability income has different tax consequences than railroad retirement income. Although Utah does allow railroad retirement income to be deducted from taxable income on line 19 of the Utah Individual Tax Return and provides guidelines on page 9 of the Utah tax instruction booklet, the provisions do not apply to railroad disability income. Those guidelines set forth that “if you received pension payments under the Railroad Retirement Act and are required to report all or part of the amount received (Tier I, Tier II, or both) as income on lines 16b and/or 20b on federal form 1040, you may deduct that amount from Utah income.” Thus, in accordance with federal law, Utah does not apply its state income tax against federal railroad retirement income. However, there is neither federal nor state legislation requiring Utah to deduct railroad disability income from Utah taxable income.

Should you need further clarification from the Commission, you may contact us.

For the Commission,

Marc B. Johnson

Commissioner

MBJ/PL

02-006