Lawmakers again want a payroll tax deferral opt-out for feds after ‘chaotic’ rollout

A bipartisan group of House members are calling on the Trump administration to provide federal employees and military members with a choice to opt out of the president’s payroll tax deferral.

In a letter to Treasury Secretary Steven Mnuchin, 43 House lawmakers have asked the administration to amend IRS guidance implementing the president’s payroll tax deferral and give federal employees and military members a choice over whether they want to participate.

The letter comes from Don. Beyer (D-Va.) and 38 of his Democratic colleagues. Four Republicans, including Reps. Francis Rooney (Fla.), Ralph Norman (S.C.), Troy Balderson (Ohio) and Don Young (Alaska), also signed on to the letter.

“Feedback from civil servants and service members we represent indicates that the withholding of payroll taxes has been chaotic and confusing for many of those affected,” the members wrote. “There is widespread concern among the ranks of both groups that deferred payroll taxes will lead to increased tax bills in January and potentially even fees for those who are unable to repay deferred taxes.”

Federal employees and military members have also been “unfairly singled out,” House members said. Few private sector employers have chosen to implement the payroll tax deferral, and other government entities not in the executive branch have made similar decisions. The U.S. Postal Service announced late last month it wouldn’t implement the president’s payroll tax deferral for its workforce.

“We therefore urge you to indicate your definite intention to grant all affected members of the United States military and employees of the federal government the choice to opt out of the policy as soon as possible,” House members said. “We further urge you to implement such changes consistently, without threat of adverse consequences, and with clear communication. The longer it takes to initiate changes, the more complex the conversion will be for payroll providers, and the more confusing the paycheck fluctuations will be for those affected.”

The request from House members comes shortly after Mnuchin told Sen. Chris Van Hollen (D-Md.) at a hearing in late September it was “a reasonable issue if people don’t want to participate” in the president’s payroll tax deferral. He said he’d follow up with the Office of Management and Budget, which is overseeing the implementation of the president’s policy for the federal and military workforce.

Van Hollen asked Treasury and OMB for a similar update.

“Since federal agencies are currently altering paychecks on a mandatory basis to implement the deferral — regardless of whether individuals want to participate — I urge you to expedite the consideration of our request to make this voluntary as soon as possible,” Van Hollen said Friday in a letter to Mnuchin and OMB Director Russell Vought.

Van Hollen and 22 other Senate Democrats had previously asked the administration in early September to make the payroll tax deferral optional for the federal workforce.

The major federal payroll providers began deferring Social Security taxes from employees’ and servicemembers’ paychecks last month. Employees and military members whose basic, taxable income is $4,000 or less during a biweekly pay period are subject to the deferral.

Federal workers, unions and members of Congress have repeatedly asked the administration for more details on the payroll tax deferral, how exactly employees will be expected to pay deferred taxes back next year and how the policy will impact their W-2s.

As federal workers began receiving their first paychecks with the deferred payroll taxes late last month, the National Treasury Employees Union said many were “misled” about whether they would be subject to the policy or not.

NTEU said it was unclear that employees whose income totaled $3,999.99 after several pre-tax deductions are subtracted out, including health insurance premiums and deductions for flexible spending and health savings accounts, are subject to the payroll tax deferral.

“This was an important detail that no one in the administration bothered to tell employees,” Tony Reardon,” NTEU’s national president, said in a statement last month. “It turns out that employees who thought they could avoid this deferral are now forced to deal with it.”

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