New Tax Breaks and Federal Employees: Who Wins and Who Loses Out?

By on December 21, 2010 in Current Events with 1 Comment

A number of readers have asked us in recent days how the tax relief act that was recently passed would impact federal employees who are covered by CSRS. This act, called the “Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010” provides that during 2011 the Social Security employee tax rate will be temporarily decreased from 6.2% to 4.2%.

CSRS employees do not pay into Social Security so the most common question asked is: “Will CSRS employees get a tax break as well?”

As we pointed out recently (See Some Federal Employees Will Miss Out on a Proposed Tax Break), CSRS employees will not get this tax break.

But some employees wanted official confirmation that they would not get this tax break, perhaps before accepting the reality of the situation.

The argument goes: “It isn’t fair that we are not getting a pay raise, we are paying more for health insurance, and we are paying more for gas and food. It is not fair that we are not getting the same tax break just because we are not under the FERS system.” 

We will leave it to each reader to decide whether this is fair or not. However, the Office of Personnel Management has now confirmed that CSRS employees are not getting this tax break.

In an email that was distributed today entitled “Temporarily Decrease in the Social Security employee tax rate,” OPM official Raymond J. Kirk wrote:

“The temporary reduction in the Social Security tax rate will not affect the employee retirement contribution rates for employees under the Civil Service Retirement System (CSRS), CSRS-offset, or the Federal Employees’ Retirement System. As a result, CSRS-offset and FERS employees will see their payroll deductions decrease by 2% up to the 2011 Social Security maximum taxable income of $106,800 (unchanged from 2010). There will be no deduction change based on this Act for CSRS employees.”

Mr. Kirk is Chief, Benefits Officer Training and Development Group for the Office of Personnel Management.

In the same email, OPM also asked, and answered, these questions that will undoubtedly help some of our readers: 

  • What is the effect of the Social Security tax change for employees under CSRS? Since they do not pay Social Security, this Social Security change does not benefit them and there will be no change in their retirement deductions.
  • What is the effect of the Social Security tax change for employees under CSRS-offset? Their Social Security tax will be reduced by 2% and there will be no change in their retirement deductions.
  • What is the effect of the Social Security tax change for employees under FERS? Their Social Security tax will be reduced by 2% and there will be no change in their retirement deductions.

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