Many federal employees are saying they have been left in the dark by either incomplete or no communications from their agencies regarding the upcoming change in federal payroll tax withholding, a sentiment also being expressed by unions and some members of Congress.
While it now appears to be settled that employees cannot opt out of the change — which will suspend Social Security payroll tax withholding through the end of the calendar year — confusion continues on a range of other issues, including when it will take effect, and whether it in fact already has.
Administration officials have said the change is to be effective as of the second pay distribution of September, which would mean the period that ends Saturday, since employees are receiving distributions this week or early next week for the period that ended August 29. Employees of at least one agency have been specifically told that it is effective in the current pay period. Employees of others, though, say that hasn’t been made clear.
The only one of the major payroll providers that has posted a notice on the withhold issue, the Defense Finance and Accounting Service, did not directly address the effective date.
Affected employees will have to repay the money after the turn of the year, with no tax penalties or interest so long as it is repaid by April 30. Several of the messages from agencies raise the possibility of a waiver of that obligation by referring to the White House’s support for it; however, they do not mention that a waiver would require action by Congress and that there is strong bipartisan opposition on Capitol Hill.
Messages from agencies also do not address how the obligation would be paid back; the DFAS notice says that “collection of the deferred taxes will be taken from your wages between January 1 and April 30, 2021 for both military members and civilian employees. Additional information on the collection process will be provided in the future.”
Nor do the messages address situations such as persons leaving federal employment before the money would be repaid—there is always a spike in federal employee retirements around the turn of the year, for example. Even the DFAS notice says only that in such a case, employees would be “still responsible for the Social Security tax repayment.”
One possibility might be for the agency to withhold the full amount due from the individual’s last pay—but that also hasn’t been specified.
The NTEU union has said that information being provided to employees “has been incomplete and conflicting” while the AFGE union similarly said that the guidance being issued “leaves many key questions unanswered.” Meanwhile, all Democrats on the House committee that oversees tax policies, Ways and Means, joined in a letter to OMB asking for details on numerous issues, saying that the administration’s statements have been “conflicting and changing.” Some two dozen senators, mostly Democrats, have sent a similar letter.