A majority of federal employees fall under the biweekly pay cap that would place them into the Social Security tax deferral program established by President Donald Trump in early August.
The program is designed for employees to keep their paycheck contribution to Social Security for the rest of 2020, though that money would then need to be repaid between Jan. 1 and April 30, 2021, and applies only to those that make less than $4,000 each bi-weekly pay period. With 26 pay periods in the average year, that equates to less than a $104,000 yearly salary.
According to December 2019 salary data compiled by the Office of Personnel Management, around 60 percent of the more than 2 million federal employees receive an annual salary that would result in a lower biweekly paycheck than the established threshold.
The Internal Revenue Service plans to have all employees returned to work by the July 15 tax filing deadline.
Private sector employers have the ability to opt out of the program, but federal employees will be required to participate, a point that has been contested by both federal labor organizations and members of Congress.
“We urge you to let federal workers and uniformed service members choose whether to defer their payroll tax obligations under IRS Notice 2020-65, rather than forcing them to participate,” more than 20 senators, led by Sen. Chris Van Hollen, D-Md., wrote in a Sept. 8 letter to the heads of the Treasury and Office of Management and Budget.
“Federal workers and service members should not be used as pawns for a payroll tax scheme that many private sector employers are unlikely to join and where key questions remain unanswered.”
Much of the issue lies in the vague guidance available to federal employees on when the deferral will kick in, how it will be applied and how the funds will be collected in the new year.
“There is a distinct lack of transparency and disclosure on the financial implications. Since the administration continues to fail to fully inform the workforce, NTEU will alert the employees we represent that they need to be prepared to pay the deferred taxes next year,” National Treasury Employees Union National President Tony Reardon said in a statement.
“As we saw during the historic government shutdown, many federal employees live paycheck to paycheck, and the government should not change those checks without adequate notice and complete honesty about what it means to their families' finances. We are also disappointed that federal employees will not be given a choice to opt out of the deferral, as many of them have requested.”
Though the deferrals could give some people struggling due to the economic downturn caused by COVID an extra financial boost, many employees may not want to have that money kept in their 2020 paychecks if it means having to pay it back in 2021.
American Federation of Government Employees National President Everett Kelley said that the choice to require feds to participate has the “makings of a fiasco for employees, employers and the IRS.”
Several House members also urged the administration on Tuesday to rethink its strategy if it intends to best help workers:
“The Administration has insisted that it is ‘implementing the deferral to give our employees relief as quickly as possible.’ If the policy truly intends to provide federal employees relief, then employees should have a free choice whether to seek this ‘relief.’ We have already heard concerns voiced by numerous constituents who do not want their payroll taxes deferred only to have their paychecks substantially reduced at the end of the deferral period.”
In the Senate letter, the writers ask Treasury Secretary Steve Mnuchin and OMB Director Russell Vought to answer whether a federal employee or military service member who leaves their position before 2021 would still be asked to pay back those payroll taxes and how the agencies plan to collect them. They also ask for the cost estimates for federal agencies to pay the employee payroll taxes that they are unable to withhold or otherwise recoup and how agencies plan to communicate key information about the deferral.
“Reports indicate that federal employee paychecks may be affected by the payroll tax deferral on or around September 18. Please respond to these questions as soon as possible so that federal workers and service members have some clarity on these issues before their paychecks are changed,” the senators wrote.