The Trump administration has said that all agencies will soon suspend Social Security payroll withholdings for federal employees through the end of the year, although whether the change will apply to a given individual will depend on their salary rate and their retirement system coverage
For those affected, the impact will be a temporary boost in take-home pay that, as things stand now, they would have to repay in the early months of 2021—presumably through a temporary doubling of their regular Social Security withholding.
Officials said Monday that all federal payroll providers are to suspend over September-December the employee share of the Social Security tax—also known as the OASDI tax—of 6.2 percent of salary. It will apply only to those earning under $4,000 gross per two-week pay period, and also only to employees under the FERS retirement program since that program includes Social Security and not to those under CSRS, which doesn’t.
According to an OPM report on federal salaries, through fiscal 2017, 75 percent of the 2.1 million federal workers outside the Postal Service had salaries below about $106,000. About 5 percent of all employees are under CSRS.
President Trump authorized the change in an early-August memo as a form of pandemic-related relief after the breakdown of negotiations over a broad bill to extend higher unemployment benefits and provide other forms of assistance. However, federal employee unions and some Democrats in Congress have said that it simply amounts to pushing off the taxes into early next year—when employees may have forgotten that they were obligated to repay them and may not be able to.
Because of that obligation, some employees already are asking whether they can keep their withholding unchanged. There has been no official word on that, although there have been reports of agencies telling employees that they won’t be allowed to opt out. Some unions also have been telling their members the same.
The administration officials said the suspension would be effective with the second pay distribution of September, potentially meaning effective in the biweekly period that started Sunday (August 30), which will yield pay distributions late in the week of the 14th or early in the following week. Employees are due a distribution later this week or early next week for the prior pay period, making that the first pay distribution of September.
However, there also have been reports of agencies telling employees that the withholding change will be effective with the pay period that begins on the 13th.
IRS guidance issued last week states that affected employees will have to repay the suspended payments by April 30—although there will be no interest or penalties charged for repaying on time—unless Congress waives the obligation. Trump’s memo anticipated that the obligation would be waived but there has been strong bipartisan opposition in Congress toward a waiver and no move toward it.
Although the suspension is voluntary for employers—many of whom in the private sector already have said they will not implement it due to the complexity and other considerations—there had been a widespread expectation that the federal government would implement it for its own employees as a model. However, prior to Monday’s announcement there had been some question.
The National Finance Center for example originally said it would implement it for the 600,000 employees across numerous agencies for which it handles payroll but then released an “updated” version of that statement saying only that it “may eliminate” the withholding temporarily.
The NFC further has said any suspension of the tax would be determined on a pay period by pay period basis, meaning that an employee’s status could change due to earning more or less overtime or other pay add-ons. That policy also presumably would be used by the other payroll providers, as well.