How is railroad retirement income treated on the federal and California tax returns? On the federal return, tier 1 railroad retirement income is treated the same as social security and tier 2 as pension income. The same is true for California. On the federal return, tier 1 and tier 2 railroad retirement income are treated the same as social security. The same is true for California. On the federal return, tier 1 railroad retirement income is treated the same as social security and tier 2 as pension income. Neither are taxable on the California return. On the federal return, tier 1 and tier 2 railroad retirement income are treated the same as pension income. Both are taxable on the California return