Federal payroll providers and agencies are beginning to detail exactly how and when federal employees and servicemembers will repay the Social Security taxes that were deferred from their paychecks during the last four months of 2020.
The latest omnibus spending package, which the president signed into law last week, allows those subject to the president’s payroll tax deferral to repay the deferred taxes — worth 6.2% of their income — throughout the entire year of 2021, rather than the first four months of the year.
The military’s largest payroll provider will collect deferred Social Security taxes from servicemembers and civilian employees over the course of 24 installments, the Defense Finance and Accounting Service (DFAS) said in a series of frequently-asked questions posted to its website.
For civilian employees, the service will collect deferred taxes between the pay periods ending Jan. 16 through Dec. 4, 2021, according to DFAS.
For active-duty military members, DFAS will collect the 2020 deferred payroll taxes from their mid-month and end-month paychecks between Jan. 1 and Dec. 30, 2021.
Reservists and guardsmen on intermittent duty this year may not see the same amount withdrawn from every pay check, DFAS said. Instead, the service will collect 2% of net pay available from each weekly, mid-month and end-month paycheck until reservists have completely repaid the total amount of taxes deferred during 2020.
DFAS handles payroll for the Defense Department, as well as the Department of Veterans Affairs, Department of Health and Human Services, Energy Department, Executive Office of the President and others.
Starting this month, employees will see the amount of 2020 deferred taxes collected during each pay period, as well as the remaining balance, reflected on their leave and earnings statements.
Other payroll providers, however, have slightly different collection plans.
Through payroll deduction, the General Services Administration will collect the deferred taxes in equal amounts over the course of the 26 bi-weekly pay periods between Jan. 1 and Dec. 31, 2021, an agency spokesperson told Federal News Network Thursday.
Both the IRS and Customs and Border Protection informed their workforces last week about the plans to collect deferred payroll taxes over the course of the next 12 months, according to the National Treasury Employees Union, which represents workers at both agencies.
The union said the guidance came from the National Finance Center, which services the IRS and Treasury Department, as well as CBP and the Department of Homeland Security, among other agencies.
The National Finance Center plans to collect the deferred taxes in 26 even installments from employees’ 2021 paychecks, according to updated frequently-asked-questions from the provider. Collection will run from Jan. 1 through the end of pay period 25, which concludes Dec. 18.
The Interior Business Center deferred questions about payroll tax deferral repayment to the Office of Management and Budget, which did not respond to three requests for more information.
“The IRS and CBP informed employees last week, based on guidance from the National Finance Center, that the deferred taxes will be prorated across 26 pay periods, which will lessen the impact on each paycheck,” Tony Reardon, NTEU national president, said earlier this week in a statement. “Throughout this entire process, federal employees’ paychecks have been increased, and now decreased, without their consent and with very little information provided to them. NTEU opposed the payroll tax deferral because federal workers were forced to participate in a program that impacts their paychecks for 16 months.”
NTEU was among several federal employee groups and members of Congress that pushed the Trump administration to give federal employees a chance to opt in or out of the president’s payroll tax deferral.
The payroll tax deferral policy itself stemmed from an executive memo President Donald Trump signed back in August. The administration billed the program as a tax holiday and paycheck boost for American workers during the pandemic, but few private sector employers chose to implement it.
The deferral was mandatory for most federal employees and military members whose gross, biweekly wages were $4,000 or less. The U.S. Postal Service, Senate and House of Representatives chose to opt out of the program this fall.
Though some agencies and payroll providers are beginning to explain how and when they plan to collect the 2020 deferred taxes from employees, it’s less clear how exactly repayment will work for those who leave federal service in 2021.
Employees who leave or retire this year before their 2020 deferred taxes have been repaid will be responsible for the remaining balance, both DFAS and NFC said.
DFAS said it will collect the remaining balance from the employee’s final paycheck. If there aren’t enough funds to cover the remaining balance, employees may receive a debt letter with further repayment instructions, the service said.
The NFC said it would send a debt letter to employees retiring in 2021 with instructions to repay the remaining taxes.
Employees who left government in 2020 also have a responsibility to repay deferred taxes, both DFAS and the NFC said.
“The government will pay the deferred Social Security taxes to the IRS on your behalf, and you will owe DFAS for this repayment,” the service wrote in its FAQs. “Collection will occur through the debt management process. A debt letter will be posted in your myPay account in January 2021, as well as sent to your address of record via U.S. mail. The debt letter will provide instructions for repayment; payments can be made online via Pay.gov.”