Federal Employees News Digest

What’s the benefit of 'deferred' payroll tax?

A major federal employee union is amplifying its objections to President Trump’s executive order currently compelling feds to put off payment of payroll taxes.

Since mid-September, federal employees paid less than $4,000 biweekly—the vast majority of feds—have had their payroll tax deferred. 

This means that—for now—6.2% of their income that is normally deducted instead is being added to their federal paycheck. To be clear, that sizable sum ordinarily pays for the employee’s share of Social Security.

The White House has framed the delaying measure as one that will help employees—and the economy—to ride out the ravages of the COVID epidemic, by temporarily pumping more cash into pockets and marketplaces. Critics, including most federal employee organizations and unions, object that the move doesn’t really exempt feds from the tax—it merely delays the due date on the obligation.

“We already knew the rollout of this program was flawed and the government took too long to give employees basic information, and now we learn that some of that information was, at best, woefully incomplete,” Tony Reardon, National Treasury Employees Union, said in a statement. “Our frontline workers deserve better, especially when it comes to something as important as their paycheck.”

Indeed, thousands of employees and the union also have discovered that an even larger number of employees are subject to the program, because in practice it is being applied everyone whose income meets the under-$4,000 per pay period threshold after most pre-tax deductions for health insurance premiums and other benefits are subtracted.

“This was an important detail that no one in the administration bothered to tell employees,” Reardon complained. “It turns out that employees who thought they could avoid this deferral are now forced to deal with it.”

The question now is: for people of modest means, who—yes—may need and be spending the extra money now on COVID-related emergency expenses: How will they pay the illusory windfall back, come January 2021, when as a loan it will begin to come due?

Many feds and their union advocates say the combo of “more ‘income’ now but less later” could lead some fed families to disaster—in a smaller version of the “balloon” mortgage loans of the housing crisis over a decade ago. For now, there’s no way around it: Most feds will see a boost in income for a very limited time, followed by a demand that they pay the full amount back later. And eligible feds have no choice to opt out, whatever their desires and concerns with the program.

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