More Feds Subject to Mandatory Payroll Tax Deferral Than Initially Thought

The National Treasury Employees Union on Friday accused the Trump administration of “misleading” federal workers about whether they would be impacted by its controversial decision to defer payroll taxes for the federal workforce.

Last month, President Trump issued a memorandum authorizing employers to defer Social Security tax deductions from employees’ paychecks between Sept. 1 and Dec. 31. Although the optional program has been largely spurned by private sector employers, the Office of Management and Budget decreed that it be mandatory for all eligible executive branch employees and members of the military service branches.

Lawmakers and federal employee groups have decried the decision to make the deferral mandatory, calling it a short-term loan that will result in an effective pay cut next year when agencies seek to recoup the deferred taxes in addition to employees’ normal payroll tax deductions.

Officials at NTEU said on Friday that federal payroll processors “misled” employees when they issued statements saying that the deferral would only apply if their pre-tax wages were less than $4,000 per pay period. In actuality, the payroll processors deferred feds’ payroll taxes if they made less than $4,000 after agencies took out other pre-tax deductions, like health insurance premiums and flexible spending and health savings account contributions.

“We already knew the rollout of this program was flawed and the government took too long to give employees basic information, and now we learn that some of that information was, at best, woefully incomplete,” NTEU National President Tony Reardon said in a statement. “Our frontline workers deserve better, especially when it comes to something as important as their paycheck.”

There may be a glimmer of hope for employees who want to avoid the deferral program, however. During testimony before the Senate Banking, Housing and Urban Affairs Committee, Treasury Secretary Steven Mnuchin suggested allowing feds to opt-out would be “reasonable,” in response to a question from Sen. Chris Van Hollen, D-Md.

“We sent a bipartisan letter simply asking you this, that with respect to folks in our military and our federal civil servants, that you at least give them the choice as to whether or not to participate, that you don’t want to force folks in the military or federal employees to participate if they don’t want to do it,” Van Hollen said. “When are we going to get an answer to the letter and [can you tell us] what your answer is?”

Mnuchin suggested he was open to the idea, but said he would have to review the matter with officials at the White House.

“I would be happy to follow up with [the Office of Management and Budget], who is responsible to have the agencies [defer the tax],” Mnuchin said. “I think that’s a reasonable issue, if people don’t want to participate. But let me follow up with them.”