Update: The closing funding bill passed by Congress last week and enacted Sunday, December 27 will extend until calendar year 2021 the obligation to reimburse social security taxes that have not been withheld on the wages of many federal employees for several months.
The action comes as federal payroll processors prepare to begin recovering amounts that were not withheld under an August presidential memo. This memo suspended Social Security deductions from September until the end of this year for a pay period in which the salary of an employee subject to the tax was less than $ 4,000. This applied in most agencies although the postal service has withdrawn.
Initial guidelines from the IRS and payroll service providers indicated that the difference must be refunded by April 30, 2021, otherwise penalties could apply.
Of the top four providers, the Defense Finance and Accounting Service released the most information, recently specifying – as had been widely assumed – that repayment would be made by increasing Social Security deductions over a period of time. equivalent period to start 2021. Just a few days ago, further DFAS guidance stated that the increase would start with the pay period starting January 3 and continue in eight equal installments until the pay period ended. ending April 24.
With a change in deadline, revised guidelines from the IRS and payroll providers are likely to come on questions such as whether the difference will be spread out over the year or whether employees will be given the opportunity to choose a period.
The latest DFAS information also added details to previous statements regarding what will happen if someone leaves federal employment, for retirement or for other reasons, before repaying the full amount – considerations that will apply. regardless of the repayment deadline, and would actually apply to more employees if the repayment is made over 12 months instead of four.
For people who separate in 2021 before the deferred social security deduction is fully received, “you remain responsible for the balance of your reimbursement of social security contributions. The unpaid balance will be taken from your last pay. If there is not enough funds to collect the full amount, you may receive a letter of debt with repayment instructions, ”he says.
He adds that for those who have separated, or will still do so, in 2020, “the government will pay Social Security deferred taxes to the IRS on your behalf, and you will owe DFAS for that refund.” Collection will be done through the debt management process. A debt letter will be posted to your myPay account in January 2021, as well as sent to your registration address via US Mail. The debt letter will provide instructions for repayment; payments can be made online through Pay.gov, ”he says.
While DFAS policy only applies specifically to the salaries it serves, in addition to civilians and military personnel in the DoD, including VA, HHS, and Energy, other vendors would likely follow similar procedures.