8569 / What other issues relate to the taxation of Social Security and railroad retirement benefits?
Railroad retirement benefits (other than Tier I benefits) are taxed like benefits received under a qualified pension or profit sharing plan. For this purpose, the Tier II portion of the taxes imposed on employees and employee representatives is treated as an employee contribution, while the Tier II portion of the taxes imposed on employers is treated as an employer contribution.1
As mentioned in Q 8568, the base amount and adjusted base amount of a married taxpayer filing separately who lives with his or her spouse at any time during the tax year is zero. This means it is much more likely that 85 percent of his or her Social Security benefits will be taxable even if the other income is relatively low. As a result, the issue of whether separated taxpayers are living apart is significant.
To address this point, the Tax Court has held that the term “live apart” means living in separate residences for purposes of IRC Section 86(c)(1)(C)(ii). Thus, where the taxpayer lived in the same residence as his spouse for at least 30 days during the tax year in question (even though maintaining separate bedrooms), the Tax Court ruled that he did not “live apart” from his spouse at all times during the year; therefore, the taxpayer’s base amount was zero.2