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Chapter 1, Section 10: Deductions from Pay

Compensation paid to federal employees is subject to a number of benefit-related deductions. Most types of compensation are subject to federal, state, and local (if applicable) tax withholding.

Compensation paid to federal employees is subject to a number of benefit-related deductions. Most types of compensation are subject to federal, state, and local (if applicable) tax withholding.

Mandatory Deductions

Federal Retirement-- For CSRS employees, the biweekly gross basic pay, based on a 40-hour week, is multiplied by 7 percent to determine the civil service retirement deduction. For FERS and CSRS Offset employees, the deduction is 0.8 percent. For employees covered by the retirement systems for air traffic controllers, firefighters, and law enforcement officers, an additional 0.5 percent is deducted. Only pay from which retirement deductions are taken is creditable for retirement purposes.

Social Security-- The Social Security FICA (Federal Insurance Contributions Act) portion (normally 6.2 percent; 4.2 percent in 2011 through February 2012, subject to further extension at the lower level) applies to the wages of FERS and CSRS Offset employees up to the Social Security taxable maximum ($110,100 for 2012). Above that threshold, CSRS Offset employees pay a 7 or 7.5 percent deduction as applicable but the money goes into the Civil Service Retirement and Disability Fund, not the Social Security Trust Fund. FERS employees pay only their civil service portion above the maximum wage base.

Medicare-- A deduction of 1.45 percent of salary applies under all retirement systems with no limitation on salary.

Also see Chapter 3, Section 2.

Tax Withholding

Federal Income Tax-- IRS Publication 15-T (at www.irs.gov/pub/irs-pdf/p15t.pdf ) shows how to calculate the federal income tax withholding on an employee's biweekly gross wages. The federal government uses the percentage method of computing withholding. To determine your biweekly income tax withholding, take into account personal exemptions, Federal Employees Health Benefits program and Federal Employees Dental and Vision Insurance Program premiums paid pretax under "premium conversion," Thrift Savings Plan personal investments including "catch-up contributions," if eligible, flexible spending account contributions, deductible IRA contributions, and other deductions for which you qualify; see Circular E and Form W-4 for detail. Subtract the appropriate amount from your regular biweekly gross wages and use the result to calculate your withholding tax using the bi-weekly gross wage table in that publication.

State and Local Taxes-- Section 5517 of Title 5, U.S.C., provides for withholding for state income tax purposes where the law of any state requires the collection of such tax and the Secretary of the Treasury has entered into an agreement to withhold state income taxes; Section 5516 of Title 5, U.S. Code provides similar authority for the District of Columbia. See Chapter 14, Section 4, for a listing of states with no income taxes. Section 5520 of Title 5 of the U.S. Code provides for withholding of city or county income or employment taxes. Policies and rates vary; see information from each taxing authority to determine proper withholding amounts.

Over Withholding-- Where over withholding (federal and/or state, if applicable) has resulted in large refunds in past years, you may be entitled to claim additional exemptions if a similar refund is anticipated in the current year. Use Form W-4 (and any equivalent state withholding certificate), which has a schedule to compute the
exemptions.

Other Deductions

Federal employees typically have several types of voluntary deductions withheld from their salaries. These in general fall into one of two categories: those deducted before federal taxes and state taxes (if applicable) are withheld, and those deducted from post-tax pay.

Among common pre-tax payroll deductions for employees are:

  • Federal Employees Health Benefits program premiums, if paid under premium conversion (see Chapter 2, Section 1)
  • Flexible spending account health care and/or dependent care account withholdings (see Section 9 of this chapter); and
  • Federal Employees Dental and Vision Insurance Program premiums (see Chapter 2, Section 4).

Among common post-tax deductions are:

  • Federal Employees Health Benefits program premiums, if not paid under premium conversion (see Chapter 2, Section 1);
  • Federal Employees' Group Life Insurance program premiums (see Chapter 2, Section 2);
  • Federal Long-Term Care Insurance Program premiums (see Chapter 2, Section 3);
  • Union or professional association dues;
  • Combined Federal Campaign contributions; and
  • Deductions for garnishment, child support, loans, savings programs, savings bond purchases, union dues, or other purposes.

Personal investments under the Thrift Savings Plan's original design, including both regular investments up to the annual IRS-set maximum and "catch-up contributions" for those eligible, are made with pre-tax money. Roth-type investments are made with post-tax money. See Chapter 6, Section 1.

A full listing of the types of allowable payroll deductions is in a July 30, 2008, memo to agencies at www.chcoc.gov/transmittals. That memo also sets an order of precedence for deductions when an employee's salary is not sufficient to permit all applicable deductions.

Many of the same deductions can be taken from retiree annuity payments, but there are differences. For example, retirees may not make additional investments in the Thrift Savings Plan nor participate in the FSA program; also, FEHB and FEDVIP withholdings cannot be made from annuities on a pre-tax basis. Special rules apply to retirees who are re-employed by the government. See Chapter 4, Section 4.

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