The government’s largest payroll processor, the Defense Finance and Accounting Service, has released additional guidance on tracking the Social Security taxes that are being suspended through the end of the year for most federal employees.
While the guidance applies directly only to the agencies for which DFAS handles payroll—in addition to DoD, VA, Energy, HHS and some smaller entities—the general principles would apply elsewhere, as well. However, even the latest guidance from DFAS, which has been the most forthcoming of the four major providers, does not answer some of the questions being raised by employees, unions and members of Congress.
The change suspends through the end of the year the 6.2 percent Social Security tax, also called the OASDI tax, for federal employees who pay that tax—generally excluding CSRS employees—and are paid less than $4,000 in a pay period. The posting repeated prior statements from DFAS and other sources that affected employees may not opt out of the suspension (although the USPS was allowed to, and did, opt out).
DFAS said that it put the change into effect as of the pay period that ended September 12, meaning that affected employees in DFAS-serviced agencies should soon see the impact, if they haven’t already, in the pay distribution for that pay period. Compliance by the other providers remains unclear, although per an OMB memo they are to make the change effective no later than the current pay period, which ends on the 26th.
The impact can be seen by comparing net pay on the most recent leave and earnings statement versus that of the prior pay period (all else being equal), DFAS said. To see the cumulative effect over time, it said, compare the year to date OASDI amount in the “benefits paid by government for you” section and the OASDI year to date amount from the “deductions” section.
“The government is still paying its portion 6.2% OASDI employer contribution each pay period therefore, the difference between these two amounts for civilians will provide visibility to the 2020 deferred Social Security deferred taxes at any point in time,” it said.
It stressed that the “tax deferred wages” line item on the statement “is not the Social Security deferred taxes; typically this is the amount of Thrift Savings Plan contributions used to reduce your federal and state taxable income.” Further, “the OASDI amount collected/deferred does not impact wages used to calculate your Thrift Savings Plan contributions. Your TSP contributions will not be affected.”
“Federal and state income taxes are not impacted by this deferral. Your federal and state income tax will be calculated in the same manner as it was before the deferral,” it added.
It said that further guidance is coming on issues such as whether an employee will be able to select repayment terms, the potential for interest and penalties if repayment is not made in full by April 30, how the deferral and collections affect your 2020 and 2021 W-2s, and more.
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