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.
Federal Retirement—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 civil service retirement deduction is 7 percent of pay subject to the deduction. For CSRS Offset employees, the deduction is 0.8 percent.
For FERS employees, the deduction is 0.8 percent 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; it also does 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.
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 ($118,500 for 2015). 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 taxable maximum. CSRS employees do not pay into Social Security.
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-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, made through the TSP’s traditional design; 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 biweekly gross wage table in that publication.
State and Local Taxes—5 U.S.C. 5516-5517 provides for withholding of state and District of Columbia income taxes (see Chapter 14, Section 4, for a listing of states with no income taxes). Also, 5 U.S.C. 5520 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.
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 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, 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. 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 pretax basis. Special rules apply to retirees who are re-employed by the government. See Chapter 4, Section 4.