Federal employee organizations are urging their members to take note that the temporary suspension of Social Security taxes affecting most federal employees is just that—both only temporary and only a suspension—and that they should treat it like a loan and not as a bonus.
The deferral will apply to employees who pay Social Security taxes and whose earnings fall below $4,000 within a given biweekly pay period. It is to stop at year’s end—presumably meaning December 31 although possibly ending with the pay period ending December 19, the last full pay period of the year. That hasn’t been made fully clear.
The deferred withholding will have to be repaid starting in January barring a decision by Congress to waive that requirement. An OMB memo of last Friday says that “the president and the administration continue to advocate for congressional action to make the payroll tax deferral permanent.”
However, the NFFE union for example posted this message to its members: “DO NOT RELY on a legislative fix to save you from repaying this loan. It is possible that the resulting U.S. tax bill will rise to several billion dollars in just a few months. There are few offsets available within the national budget in which to find several billion dollars. Plus, the political optics of asking the general public to pay the payroll taxes of federal employees in addition to paying their own payroll taxes makes a legislative fix via forgiveness extremely unlikely.”
How the repayment is to be made also hasn’t been specified but there is a general assumption it would involve a doubling of regular Social Security withholdings until an equivalent amount is repaid. Employee organizations are recommending that employees set the money aside in a designated account so that they will have it to draw on to keep their disposable income at the same level once the higher withholdings start.
The repayment obligation further would still apply to those who left the government before that point—the turn of the year is a popular time for federal employees to retire—although how that would be done also remains unclear.
One of the major federal payroll processors, the Interior Business Center, for example said that “determination is still pending regarding the future tax collection process, tax reporting of the deferral, and who owns the debt.” Another, the Defense Finance and Accounting Service similarly said that while “collection of the deferred taxes will be taken between January 1 and April 30, additional information on the collection process is to be “provided in the future.”
Numerous letters have been sent by different members of Congress or groups of them—the latest from all the House members in the national capital area—to the administration asking for those and other details and further asking that employees be allowed to opt out. Among the relatively few private sector employers who have said they will make the change—it is voluntary for them—some have said they will give employees that choice. Federal employee unions have made similar requests.
However, the OMB memo—the administration’s only response so far—contained no details beyond what already had been released by the payroll providers and does not even address the possibility of allowing opt-outs.