Payroll Tax Deferral Will Be Mandatory for Eligible Feds, Service Members

Federal employees and members of the military will not be able to opt out of the Trump administration’s plan to defer payroll taxes from this month until the end of the year, despite calls from lawmakers and federal employee groups.

In August, President Trump issued a memorandum authorizing employers to defer payroll taxes between September and December 2020, and late last month, federal payroll providers announced they would begin implementing the deferral later this month.

That decision drew outcry from federal employee groups and Democratic lawmakers, who accused the administration of treating federal workers like “guinea pigs,” since many private employers have said they would not opt to take advantage of the initiative.

Opponents of the plan said the move would simply force federal employees to pay back taxes by April 2020 and set them up for penalties and interest payments if they cannot reimburse the Treasury in time. They asked the administration to allow feds to opt out of the deferral and continue to have their payroll taxes taken out of their paychecks as normal.

But in a statement Sunday, the Defense Finance and Accounting Service, which processes payroll for the Defense Department, said civilian employees and members of the military service branches would not be able to opt out of the deferral. According to the president’s memorandum, employees will have their taxes deferred if they make less than $4,000 per pay period or $104,000 annually.

“Effective pay period ending September 12, 2020, DFAS will temporarily defer your 6.2% [Old Age, Survivors and Disability Insurance] tax withholding if your wages . . . are $4,000 or less in any given pay period,” the agency wrote. “[Military] members [and civilian employees] are not eligible to opt out of the deferral if their Social Security wages fall within the stated limits. The deferral will happen automatically.”

It remains to be seen how federal agencies plan to recoup the deferred tax money in 2021, although the Trump administration has said it would request legislation allowing employees to avoid paying back the money.

“Per IRS guidance, 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,” the Defense payroll agency stated. “Additional information on that collection process will be provided in the future. If a military member or civilian employee separates or retires in 2020 before the Social Security tax can be collected in 2021, they are still responsible for the Social Security tax repayment.”

In a statement Tuesday, National Treasury Employees Union National President Tony Reardon described the rollout of the payroll tax deferral as “unconscionable.”

“[Federal workers] deserve to know the full impact of this deferral on their paychecks including whether the program has already begun and how these deferred taxes will be collected next year,” he said. “There is a distinct lack of transparency and disclosure on the financial implications. Since the administration continues to fail to fully inform the workforce, NTEU will alert the employees we represent that they need to be prepared to pay the deferred taxes next year.”

Randy Erwin, national president of the National Federation of Federal Employees, noted that if federal agencies simply recoup the taxes in the first few months of 2021, the temporary deferral effectively amounts to a 12% tax increase just on federal workers.

“Without consultation of Congress or stakeholder groups, and seemingly against the advice of the business community, the Trump administration orchestrates this stupid tax plan, which equates to a forced loan to federal workers based on their payroll taxes,” he said. “The Trump administration ruled out the ability to opt out of this bizarre tax scam, so employees have to set this money aside in order to repay it early next year via increased deductions from their paychecks. This change is pointless.”