Federal Employees Misled by Administration on Payroll Tax Deferral

Press Release September 25, 2020

Washington D.C. – The administration’s explanation of which federal employees would be affected by the payroll tax deferral was incomplete and misleading which caused many workers to learn this week they were unexpectedly subjected to the deferral. 

Only after NTEU inquired about the discrepancy did the administration revise its instructions on how employees can calculate whether their payroll taxes would be temporarily suspended. As a result, more employees will be subject to the deferral than originally anticipated. 

“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,” said NTEU National President Tony Reardon. “Our frontline workers deserve better, especially when it comes to something as important as their paycheck.” 

From the beginning, employees were told that the temporary deferral of the 6.2 percent payroll tax was for those whose gross salary was $3,999 or less per pay period. After NTEU inquired, however, the IRS informed the union that the taxes are deferred if the gross salary is less than $3,999 after several pre-tax deductions are subtracted out, including health insurance premiums and deductions for flexible spending and health savings accounts. 

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

Any taxes deferred in 2020 must be paid in 2021, and NTEU continues to warn employees to be prepared for smaller paychecks from January through April of next year when the 2020 taxes likely will be withheld from their checks, along with the 2021 taxes.  

“The exact process for how these taxes will be collected from employees in 2021 is another key detail that the administration has not communicated to federal employees,” Reardon said. “Additionally, we continue to wait for the government to explain what the deferral will mean for employees' income tax obligations.”

The deferrals began in Pay Period 18, for which paychecks started arriving this week. Federal employees were not allowed to opt-out. Notably, the House of Representatives, the Senate, the federal judiciary and the U.S. Postal Service chose not to impose the deferral on their workers, along with many major private sector employers. 

“Federal employees in the executive branch and the military are just about the only people who have to deal with this deferral, which is nothing more than a temporary loan that they didn’t ask for and that they have to pay back,” Reardon said. “We remain concerned about those employees, especially those who live paycheck to paycheck, who may not be financially prepared for the hit to their family budget in 2021.”  

NTEU represents about 150,000 employees at 33 federal agencies and departments.