The largest federal payroll provider has issued further guidance on the requirement just ahead for many federal employees to repay the Social Security withholdings that have been suspended since September under a presidential memo.
Since that time, most agencies have not been collecting the 6.2 percent Social Security payroll tax, or OASDI tax, from an employee’s pay during a biweekly pay period in which the employee’s earnings subject to that withholding are below $4,000. The main exception is the Postal Service, which because of its semi-corporate status was allowed to opt out and did, as did apparently the large majority of private sector companies that also had the choice.
Individual employees of other agencies have not been allowed to opt out even though many have said they wish to do that. Legislation to allow them that choice was offered in Congress but has not advanced, with the Senate last week defeating a bid to use a shortcut procedure to clear it through that chamber. That would have made little difference in any event since the obligation to begin repayment is now just weeks away, with amounts due ranging from the hundreds to several thousands of dollars, depending on the employee’s salary.
For employees who have had withholdings suspended, “The total amount of your 2020 deferred Social Security taxes will be collected on a prorated basis from your pay, divided evenly among pay periods starting January 2021 through April 30, 2021,” the Defense Finance and Accounting Service said in an update to a question and answer posting.
“The rate of pay collected each pay period during this 4–month period in 2021 will depend on the total amount of taxes deferred in 2020 and will be different for each individual,” it said. Earlier DFAS had said that the deferred payments would be collected but did not specify a formula—although it was generally assumed that the repayment would be made as an increase in regular withholdings starting in January until the amount is repaid.
Also, DFAS earlier had said that while those who separate from the government (for retirement or other reasons) before the difference is collected through payroll withholding still will be obligated to repay it, the agency provided no guidance on how that would be done. The new notice says that those separating in this year “will receive a debt letter with instructions on how to make payment.”
For those separating in 2021 before the difference is paid in full, “The pay system will attempt to collect the remaining amount owed in full from your final pay check. If there is not enough applicable earnings on the final pay to cover the remaining amount owed you will receive a debt letter with instructions on how to make the remaining payment,” it says.
DFAS handles payroll for the majority of non-postal federal employees, not only Defense Department civilians (and military personnel, most of whom also are affected by the withholding suspension) but also VA, Energy, HHS and some smaller entities. The other major payroll providers have not posted similar information regarding the agencies they service. However, all have followed the same general procedures so far.