| Instructions for Form CT-1 |
2006 Tax Year |
This is archived information that pertains only to the 2006 Tax Year. If you
are looking for information for the current tax year, go to the Tax Prep Help Area.
Use Form CT-1 to report taxes imposed by the Railroad Retirement Tax Act (RRTA).
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
and Medicare 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.
Form CT-1 taxes for employees of a qualified subchapter S subsidiary (QSub) or an entity disregarded as an entity
separate from its owner under
Regulations section 301.7701-2(c)(2) may be reported and paid either:
-
By its owner (as if the employees of the disregarded entity are employed directly by the owner) using the owner's name and
taxpayer
identification number (TIN) or
-
By each entity recognized as a separate entity under state law using the entity's own name and TIN.
If the second method is chosen, the owner retains responsibility for the employment tax obligations of the disregarded
entity. See Notice 99-6,
1999-1 C.B. 321. You can find Notice 99-6 on page 12 of Internal Revenue Bulletin 1999-3 at
www.irs.gov/pub/irs-irbs/irb99-03.pdf.
Send Form CT-1 to:
Internal Revenue Service Center
Cincinnati, OH 45999-0007
File Form CT-1 by February 28, 2007.
The terms “employer” and “employee” used in these instructions are defined in section 3231 and in its regulations.
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, Tier I
Medicare, 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.
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:
-
Certain employee achievement awards under
section 74(c),
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Certain scholarship and fellowship grants under
section 117,
-
Certain fringe benefits under section 132, and
-
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.
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Payments made specifically for traveling or other bona fide and necessary expenses that meet the rules in the regulations
under section
62.
-
Payments for service 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:
-
Under a workers' compensation law,
-
Under section 2(a) of the Railroad Unemployment Insurance Act for days of sickness due to on-the-job injury,
-
Under the Railroad Retirement Act, or
-
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 2006
|
| Tier I |
|
|
Employer and Employee: Each pay 6.2% of first
|
$94,200
|
| Tier I Medicare |
|
|
Employer and Employee: Each pay 1.45% of
|
All
|
| Tier II |
|
|
Employer: Pays 12.6% of first
|
$69,900
|
|
Employee: Pays 4.4% of first
|
$69,900
|
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 2006 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 and Medicare 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.
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 regulations relating to the RRTA.
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) 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).
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.
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 2007 is calendar
year 2005.
Use the table below to determine which deposit schedule to follow for 2007.
IF you reported taxes
for the lookback period (2005) of...
|
THEN for 2007 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:
-
2005 Form CT-1—$49,000
-
2006 Form CT-1—$52,000
Employer A is a monthly schedule depositor for 2007 because its Form CT-1 taxes for its lookback period (calendar
year 2005) were not more than
$50,000. However, for 2008, Employer A is a semiweekly schedule depositor because A's taxes exceeded $50,000 for its lookback
period (calendar year
2006).
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 are not
used for purposes of the lookback rule. 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 (2005).
B discovered in March 2007 that the tax during the lookback period (2005) was understated by $10,000 and will correct this
error with an adjustment
on the 2007 Form CT-1.
B is a monthly schedule depositor for 2007 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 is treated as part of the 2007 Form CT-1 taxes.
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
|
The last day of the calendar year ends the semiweekly deposit period and begins a new one. See Semiweekly Deposit Schedule
in section 11 of Pub. 15
(Circular E).
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 27, 2007 (Saturday), payday must be deposited by February 2, 2007 (Friday). Under the semiweekly
deposit rule, taxes arising
on Saturday through Tuesday must be deposited by the following Friday.
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.
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 31, 2007. Because this was the first year of its business, its Form CT-1
taxes for its lookback period
(2005) 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 9, 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 9 (Friday), F must deposit the $100,000 by February 12 (Monday), the next
banking day. F became a
semiweekly schedule depositor on February 10. F will be a semiweekly schedule depositor for the rest of 2007 and
for 2008.
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.
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 RRBLINK
or the Electronic Federal Tax Payment System (EFTPS) in 2007 if:
-
The total of deposits of such taxes in 2005 were more than $200,000 or
-
You were required to use RRBLINK/EFTPS in 2006.
If you are required to use RRBLINK/EFTPS and use Form 8109 (see below) instead, you may be subject to a 10% penalty.
If you are not required to use
RRBLINK/EFTPS, you may participate voluntarily. To enroll in or get more information about RRBLINK, call 1-888-273-2265. To
enroll in or get more
information about EFTPS, visit the EFTPS website at
www.eftps.gov or call 1-800-555-4477.
You can use RRBLINK to make your railroad retirement payments and your federal tax payments. If you are enrolled in RRBLINK
and EFTPS, you may be
able to use RRBLINK for all your transactions. Contact RRBLINK at 1-888-273-2265 for more information.
Depositing on time.
For deposits made by RRBLINK/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:
-
Any deposit shortfall does not exceed the greater of $100 or 2% of the amount of taxes otherwise required to be deposited
and
-
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 2007, the shortfall makeup date is February 16, 2007 (Friday).
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, 2001-50 I.R.B. 579,
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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