Payroll tax deferral still causing headaches for some federal retirees and seasonal workers

All federal employees, including some retirees and seasonal workers who received recent debt notices indicating otherwise, still have until Jan. 3, 2022 to repa...

“Simple” was never the right word to describe last year’s temporary payroll tax deferral, which was implemented almost exclusively for federal employees and military members during the last four months of 2020.

It got more confusing last month, when the Agriculture Department’s National Finance Center sent bills to certain federal retirees, seasonal workers and other employees who took a break in service and still have 2020 deferred taxes to repay.

The April 8 notices, which Federal News Network reviewed, gave some seasonal employees and retires a May 2, 2021 deadline to repay the debt, or else interest or penalties would accrue.

Those notices are inaccurate, and the May 2 repayment date listed on the bill is incorrect, USDA told Federal News Network.

All federal employees who had payroll taxes deferred in 2020 — including seasonal workers, federal retirees and employees who had a break in service — have until Jan. 3, 2022 to repay them before interest or other penalties accrue.

USDA’s National Finance Center is notifying employees and reminding them of actual due dates for repaying the remaining balancing of deferred taxes, plus any interest.

“NFC has briefed all levels of leadership and they are aware of the corrective actions that have been put in place to re-communicate with employees that received the notice with the erroneous date,” USDA said in an email to Federal News Network.

It’s unclear how many federal employees or retirees received a notice with the incorrect date.

The vast majority of employees still in federal service are automatically repaying the 2020 deferred taxes as usual through their paychecks this year.

But anyone who left federal service this year, even for a brief period, must actively make plans to repay the remaining portion by Jan. 3, 2022.

The National Federation of Federal Employees, which represents seasonal workers at USDA’s Forest Service, said their seasonal members received notices with the incorrect repayment date.

“Our members were shocked to get a big tax bill with only days or weeks to pay it without advanced notice of the date or amount due,” Randy Erwin, NFFE national president, said in a statement. “We expect better from the NFC. This was a poorly executed operation particularly because the NFC had the tax numbers since January.”

The payroll tax deferral policy itself stemmed from an executive memo former President Donald Trump signed last August. The administration at the time billed the program as a tax holiday and paycheck boost for American workers during the pandemic, but few private sector employers chose to implement it.

The payroll tax deferral was mandatory for most federal employees and military members whose gross, biweekly wages were $4,000 or less. The U.S. Postal Service, House of Representatives and Senate, however, chose not to implement it for their employees.

The program was a big point of frustration for federal employee unions, who were irked their members had no choice but to participate in a temporary payroll tax deferral. The military services spent last fall warning active-duty members not to spend what looked like a temporary paycheck boost.

Members of Congress worried young servicemembers wouldn’t plan ahead and would struggle to repay the deferred taxes this year.

Initially, the Treasury Department and IRS said federal employees impacted by the payroll tax deferral had four months — through April 2021 — to repay last year’s deferred taxes.

But Congress included a provision in the 2021 omnibus and COVID-19 relief package, which gave federal employees and military members all of this year to repay the deferred sum.

Federal payroll providers detailed slightly different plans for collecting the 2020 deferred payroll taxes, but ultimately, employees and military members have through the end of this year to repay the deferred amount.

It’s more complicated for retirees and seasonal workers who may leave or take a break from federal service before they’ve paid off all of last year’s deferred payroll taxes.

“The previous administration’s ill-founded payroll tax deferral program continues to cause problems for those federal employees who were forced to participate,” said Tony Reardon, national president of the National Treasury Employees Union.

NTEU represents permanent and seasonal workers at the IRS, where USDA’s National Finance Center handles payroll.

“The debt notices should be corrected immediately to make it clear that employees will not incur financial penalties or interest if the debt is paid in full by Jan. 3, 2022,” Reardon said. “Employees also deserve clear instructions on how to repay the deferral if they are no longer on the government payroll.”

If you have received a debt notice for an outstanding balance, make sure to read the fine print. The debt will become delinquent if you don’t pay up or enter a repayment plan by Jan. 3.

Looking for more details on the payroll tax deferral? The National Finance Center has list of frequently-asked-questions here. The Defense Finance and Accounting Service has its own FAQ for military members and civilian feds here.

Nearly Useless Factoid

By David Thornton

People who sleep on their left side are more likely to have nightmares than those who sleep on their right.

Source: Psychology Today

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