The RRB will not withhold any federal tax if you did not file a W-4 withholding form. The taxable amount takes into consideration money paid in and is the amount of benefits payable before deduction of Tier I railroad retirement tax.
The RRB says:
Sickness benefits paid under the Railroad Unemployment Insurance Act, with the exception of sickness benefits paid for an on-duty injury, are considered income for Federal income tax purposes.
Each year, the RRB sends railroad employees Form W-2, Wage and Tax Statement, showing the amount of sickness benefits paid during the preceding calendar year.
The amount shown on Form W-2 is the amount of benefits payable before deduction of Tier I railroad retirement tax. The amount includes benefits payable but withheld to offset a debt to the RRB.
For more info see: When Sickness Benefits are Taxable
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