Federal payroll processors are pushing ahead with the mandatory deferral of Social Security taxes between now and the end of the year, while warning employees that they will have to pay them back next year.
After weeks of information trickling out from individual payroll processors about the Trump administration’s plan to defer the payroll taxes of federal employees and members of the military between now and the end of 2020, the Office of Management and Budget issued a memo on the subject last week, shedding little light on the effort.
Beginning with paychecks many federal employees and service members receive this week, agencies will not deduct the typical 6.2% employee portion of the Old Age Survivors Disability Insurance tax. Feds will continue to see larger than normal take home pay until the end of the year, although federal payroll processors have indicated they will begin to recoup that money in 2021 in the form of greater payroll tax deductions.
In a Sept. 11 memo to agency heads, Office of Management and Budget acting Deputy Director for Management Michael Rigas, who also serves as acting director of the Office of Personnel Management, confirmed that the tax deferral will be mandatory for all executive branch federal employees and military service members deemed eligible—by making less than $104,000 annually or $4,000 per biweekly pay period—by an August 8 presidential memorandum authorizing the deferral.
But the memo contained little new information, aside from instructions that agencies should inform their employees of the initiative.
“Agencies are to continue to inform and educate employees concerning the payroll tax deferral, including its anticipated impact on individuals’ paychecks over the course of the coming months,” Rigas wrote. “I recommend each agency coordinate with its payroll provider to disseminate information to employees, and to answer questions they may have.”
Rigas also noted that the Chief Human Capital Officers Council had prepared an “FAQ template” for agencies to distribute to employees, but that document was one of the few council transmittals not available for public viewing on its website as of Monday afternoon.
The Interior Department’s Interior Business Center, which handles payroll processing for more than 150 government agencies and offices, issued its own memo last week confirming that employees at the agencies it serves will see the deferral beginning in the paychecks slated to go out on either Sept. 18 or Sept. 22, depending on the agency.
The memo also stated that agencies within the judicial branch have the option of whether to participate in the deferral program. Congress already has declined to extend payroll tax deferrals to its employees.
It remains unclear how payroll processors will seek to recoup the tax money deferred under the program next year, or how it will handle employees who retire or otherwise leave federal service prior to the recoupment period.
“The payback period for deferred taxes will occur between Jan. 1, 2021, and April 30, 2021,” the Interior Business Center wrote. “Determination is still pending regarding the future tax collection process, tax reporting of the deferral, and who owns the debt.”
Meanwhile, the Defense Department is encouraging members of the military and civilian employees to “plan ahead” for the period of increased tax withholding in 2021.
“For example, a service member whose monthly basic pay is $3,306.30, could expect to see an increase of $204.99 in their monthly net take home pay from September through December 2020,” the department wrote. “Under current IRS guidance, beginning in January 2021, and continuing through April 2021, the $204.99 deferred tax amount will be withheld from the service member’s pay, in addition to his or her 6.2% [Social Security] taxes that are normally withheld each month.”
A Sept. 10 tweet from President Trump suggested there is one way for service members and federal workers to ensure they do not have to worry about increased tax withholding in 2021: vote for him.
“When we win I, as your President, will totally forgive ALL deferred payroll taxes with money from the General Fund,” he wrote. “Sleepy Joe Biden will do the opposite, he will raise your taxes and DESTROY our Country!”
In a statement Friday, Rep. Don Beyer, D-Va., who is among a group of lawmakers pushing for the administration to make the tax deferral optional, accused Trump of trying to “bribe” federal workers.
“The president’s mandatory payroll tax deferrals shows disrespect for America’s military and civil service, and Trump is making it clear that this is intended as a form of political blackmail,” Beyer said. “Trump’s openly corrupt message is, ‘Vote for me and I will pay you, otherwise your paychecks will decrease in January.’ This is corruption as public policy, and both the Constitution and the law make it clear that Trump cannot do what he says.”