My earlier article on whether or not federal employees will have an extra pay day in 2015 has caused a lot of confusion.
- Employees who are serviced by payroll offices other than DFAS may or may not have 27 pay periods and/or pay days in 2015. Response: Not all payroll offices process their work on the same schedule.
- Even DFAS apparently does not pay all of its customer agencies on the same schedule. USACE appears to be one that is on a different schedule, so USACE will apparently have the standard 26 pay days in 2015. Response: That’s ok. We love USACE employees anyway!
- Some people have gotten different answers from HR and payroll staff regarding whether or not their agency has 26 or 27 pay days in 2015. Response: This is not surprising. Sometimes these two offices aren’t on the same page, but for purposes of checking how your pay is going to be reported for tax purposes, the payroll office determination should be the most accurate.
- Other people have said that the actual pay date doesn’t matter at all; what matters is when the deposit actually hits the employee’s bank. Response: It’s this writer’s opinion that the payroll office’s “official pay date” is the important date. This is the date by which employees are expected to receive their pay, and tax documents are issued accordingly — even if the pay actually reaches bank accounts a little earlier or later.
- Some have confused pay dates with pay periods. Response: The delay between the end of a pay period and actual receipt of the pay creates the possibility that the pay period and its associated pay day will be in different tax years.
The number of pay days in a given tax year is of importance primarily to FERS employees who will exceed the tax year limit on contributions to the TSP ($18,000 in 2015). When contributions exceed the limit within the tax year, the contributions automatically terminate. If those contributions terminate before the last pay period of the tax year, then there may be a pay period (or more) during which the employee makes no contributions — and if they don’t make contributions, they don’t get matching contributions. And therein lies the problem.
Example: If employees want to contribute the maximum of $18,000 in 2015 and there are 26 pay days, then they might choose to contribute a biweekly fixed amount of $693. This would cause them to reach the limit with the 26th pay day. However, if it turns out that there are 27 pay days, that biweekly amount would cause them to have one pay day (the 27th) when they do not contribute (because they hit the limit on their 26th pay day), so they would not receive matching contributions on the 27th pay day. ($667 would be the right amount to set aside in order to spread the $18,000 limit over 27 pay days.)
So if you are a FERS employee who wants to contribute the $18,000 maximum to the TSP in 2015, the best possible advice is to check with your payroll office to determine whether there will be 26 or 27 pay days (not pay periods) in the 2015 tax year. If there are any payroll office staff among the readers of this post, please consider notifying your HR staff of the number of pay days and sharing this with agency employees.
In preparing this article, I consulted with Ehren Clovis, another retirement expert. Ehren offers individual retirement and benefits consulting by phone or email for a fee. She can be reached via email at firstname.lastname@example.org.
John Grobe’s latest book, The Answer Book on Your Federal Employee Benefits, has just been released by LRP Publications. Order your copy at shoplrp.com. Ask your human resources office to contact Federal Career Experts about pre-retirement training.