Deductions from Pay
Compensation paid to federal employees is subject to a number of benefit-related deductions, including federal, state, and local (if applicable) tax withholding.
Federal Retirement—Federal retirement deductions go into the Civil Service Retirement and Disability Fund, operated by the Office of Personnel Management and used to pay CSRS benefits and the civil service portions of CSRS Offset and FERS benefits. (Note: Not all forms of pay are subject to federal retirement deductions; those not subject to the deductions also are not creditable toward a federal annuity. See High-3 Salary Base in Chapter 3, Section 4.)
For CSRS employees, the federal retirement deduction is 7 percent of pay subject to the deduction. CSRS employees do not pay into Social Security from their federal salaries; however, they may pay into it from other earnings, if applicable.
CSRS Offset employees pay a federal retirement deduction of 0.8 percent of pay subject to the deduction plus 6.2 percent into Social Security up to an annual dollar threshold (see below); above that threshold they pay 7 percent into the civil service retirement fund, as described below.
For FERS employees (who also pay into Social Security as described below), the federal retirement deduction is 0.8 percent of pay subject to the deduction for those hired before 2013. It is 3.1 percent for those first hired, or rehired after a break in service, in 2013—except that it is 0.8 percent for those rehired with at least five years of prior creditable or potentially creditable (such as through transfer from another eligible federal retirement system) civilian service. Detailed guidance on this “FERS Revised Annuity Employees” provision is in Benefits Administration Letters 12-104 and 13-102 at www.opm.gov/retirement-services/publications-forms/benefits-administration-letters. The required contribution from those hired, or rehired after a break in service (with the same exception applying) in 2014 or later is 4.4 percent. Detailed guidance on this “FERS Further Revised Annuity Employees” provision is in Benefits Administration Letters 14-102 and 14-107 at that online address. (Note: Higher levels of required contributions do not apply under CSRS because no newly hired employees are placed in that system; they also do not apply under CSRS Offset because by definition employees hired under that system have at least five years of prior service. CSRS or CSRS Offset employees who elect FERS coverage if given the opportunity, for example on return from a break in service, pay 0.8 percent.)
Under each system, employees covered by the special retirement provisions for air traffic controllers, firefighters, and law enforcement officers pay an additional 0.5 percentage points. See Chapter 3, Section 8.
Social Security—The Social Security, or FICA (Federal Insurance Contributions Act), tax of 6.2 percent applies to the wages of FERS and CSRS Offset employees (but not to standard CSRS employees) up to an annual taxable maximum ($132,900 for 2019). Above that threshold, CSRS Offset employees pay a 7 percent deduction 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 Social Security taxable maximum.
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.
Federal Income Tax—IRS Publication 15 (Circular E) at www.irs.gov/pub/irs-pdf/p15.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, made through the TSP’s traditional design; flexible spending account contributions; deductible IRA contributions; and other deductions for which you qualify. See Publication 15 and Form W-4 at www.irs.gov/pub/irs-pdf/fw4.pdf for details. Subtract the appropriate amount from your regular biweekly gross wages and use the result to calculate your withholding tax using the biweekly gross wage table in that publication.
State and Local Taxes—5 U.S.C. 5516-5517 provides for withholding of applicable state and District of Columbia income taxes, and 5 U.S.C. 5520 provides for withholding of applicable city or county income or employment taxes. Policies and rates vary; see information from each taxing authority to determine proper withholding amounts.
Withholding—Use the federal Form W-4 (and any equivalent state withholding certificate) to compute and designate your exemptions.
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 after-tax pay. Among common pretax 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 after-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, or other purposes.
Personal investments in the Thrift Savings Plan, including both regular investments up to the annual IRS-set maximum and “catch-up contributions” for those eligible, are made with pretax money into traditional balances and with after-tax money into Roth balances. See Chapter 6, Section 1.
A listing of the allowable payroll deductions is in a July 30, 2008, memo 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, as might happen when an employee is in unpaid status for part of a pay period.
Many of the same deductions can be taken from retiree annuity payments but there are differences. Retirees may not make additional investments in the Thrift Savings Plan nor participate in the FSA program, nor may FEHB and FEDVIP withholdings be made from annuities on a pretax basis (note: phased retirees are treated as active employees for these purposes; see Phased Retirement in Chapter 3, Section 1). Special rules apply to retirees who are re-employed by the government (see Chapter 4, Section 4).