Social Security tax break treats federal workers differently
The Senate is fixing legislation that would result in most federal employees missing a proposed tax holiday.
At the same time, another group of federal workers, and some state and local employees, are scheduled to get no tax holiday at all, even as Congress and the administration prepares to freeze federal pay for two years.
The legislation would implement the agreement on taxes reached this week between Obama and Congressional Republicans. It reduces the amount paid by employees in Social Security payroll tax from 6.2 percent to 4.2 percent.
Federal employees covered by the Federal Employee Retirement System pay 7 percent of their salary into the Civil Service Retirement and Disability Fund, with Social Security getting 6.2 percent of the salary.
"As a result, if their Social Security payment is reduced to 4.2 percent, the amount they would be required to pay into the CSRDF would increase from 0.8 percent of salary to 2.8 percent," Joseph A. Beaudoin, president of the National Active and Retired Federal Employees Association, said in a letter to senators. "We believe that supporters of the payroll tax holiday would want to resolve this unintended inequity."
Congress has inserted language into the tax agreement legislation that would allow FERS employees to benefit from the tax break, according to congressional and employee organization sources. Under the proposed fix, FERS employees would pay 4.2 percent of their salary in Social Security taxes next year, like most other Americans.
Employees covered by the Civil Service Retirement System and some state and local government employees are not slated to get any tax break. The reason - they don't pay Social Security payroll taxes, so they can't pay 2 percent less than zero. CSRS-covered employees, however, do pay 7 percent of their salary toward their pensions.
"Unless the tax cut plan includes a one year, 2% reduction for employee contributions to CSRS, federal employees under that system will be seeing not only a pay freeze but the lack of a 2% tax cut that both private sector and federal employees covered by FERS, will benefit from," said Colleen M. Kelley, president of the National Treasury Employees Union, in a letter to the Senate. "NTEU believes this unequal treatment of federal employees is unfair and urges that a one year, 2% reduction in employee contributions to CSRS, or similar remedy, be included in any payroll tax holiday legislation."
At this point, however, there is no legislation that would give CSRS and the state and local public employees the tax holiday. The Office of Management and Budget said it is studying the issue.
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| December 10, 2010; 7:18 PM ET
Categories: Workplace Issues
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