Federal employees who haven’t already seen their pay impacted by the Trump administration-ordered suspension of Social Security withholding should be seeing one soon, and for some that is coming as a surprise.
While federal payroll providers and employing agencies have put out only limited information on the change, the administration’s policy is that any that didn’t carry it out during the pay period that ended September 12 had to do so by the end of the one that ended Saturday (September 26). Pay distributions for that period will occur later this week or early next week, varying by agency.
The policy suspends the 6.2 percent Social Security payroll tax of those whose wages subject to that tax—also called the OASDI tax—are below $4,000 in a pay period. That suspension took effect either in the pay period that ended September 12 or in the one ending September 26, with the pay distributions for that period to be made either late this week or next week, varying by agency.
Some employees whose gross salary is above $4,000 in a pay period and had been expected to excluded are included because their other withholdings bring their Social Security taxable income below that dollar figure.
Almost all federal employees pay their FEHB premiums on a pre-tax basis; all FEDVIP dental-vision plan premiums are paid on that basis; and flexible spending accounts also consist of pre-tax money. Each of those reduces an individual’s wages for purposes of Social Security withholding.
The NTEU union said that by not making that clear from the outset, “the administration’s explanation of which federal employees would be affected by the payroll tax deferral was incomplete and misleading.” (Investments in the TSP do not reduce wages for purposes of the Social Security withholding, although those made into “traditional”—pre-tax, as opposed to “Roth” post-tax—balances do so for purposes of federal income tax.)
The withholding change applies to the majority of the federal workforce—outside the Postal Service and judicial agencies, which have opted out—many of whom argue that it is only complicating their finances and creating an obligation for them to repay the money through higher Social Security deductions starting in January.
The federal payroll provider agencies and administration officials have consistently said that individual employees may not opt out. However, there was a glimmer of a potential change last week when Treasury Secretary Mnuchin—when asked about the issue at a hearing—said it would be “reasonable” to allow employees to opt out.
Mnuchin said he would discuss the matter with OMB but there has been no sign since then of a policy change.