United StatesOffice of
Personnel Management
The Federal Government's Human Resources Agency
|
||||
| Subject: | CSRS Withholdings for CSRS-Offset Employees Who Are HB-PC Participants |
We have received many inquiries from agency payroll officials regarding the withholding of retirement contributions for employees who are covered by CSRS-offset ("offset") and also participate in Health Benefits Premium Conversion (HB-PC). We understand that the guidance we provided to APOs may not have been comprehensive in this regard and believe that this letter clarifies our policy.
The law requires that the percentage of basic pay withheld each pay period for the CSRS plus the percentage of basic pay withheld for OASDI must equal the "full" CSRS withholding rate. The implementation of HB-PC does not alter this fundamental rule. Thus, for offset employees, a total of 7.0, 7.5 or 8.0 percent of basic pay (depending upon the category of coverage) must be withheld each pay period for CSRS plus OASDI.
Prior to the implementation of HB-PC, CSRS withholdings always reverted to the "full" rate when total basic pay for the calendar year reached the social security wage base (SSWB). For offset employees who participate in HB-PC, this is not the case. For these employees, CSRS withholdings must revert to the "full" rate when total OASDI wages for the calendar year reach the SSWB. Should CSRS withholding revert to the "full" rate when total basic pay for the calendar year reaches the SSWB, employees will experience combined CSRS/OASDI withholdings that exceed CSRS withholdings at the "full" rate for that pay period.
While OASDI wages remain below the SSWB, several agency payroll offices (APOs) are applying the "reduced" CSRS withholding rate only to either basic pay or to OASDI wages. If withholdings are processed in this manner, CSRS will be under-withheld and the employee will be overpaid for the pay period.
To meet the requirement that the percentage of basic pay withheld each pay period for the CSRS and OASDI equal the "full" CSRS withholding rate, therefore, APOs must adhere to the following rules for offset employees who participate in HB-PC:
- As long as the employee's total OASDI wages for the calendar year have not exceeded the SSWB:
Apply: To: "Reduced" CSRS withholding rate Basic pay less pre-tax FEHB deduction "Full" CSRS withholding rate Basic pay equal to pre-tax FEHB deduction - When total OASDI wages (not basic pay) for the calendar year reach the SSWB, the CSRS withholding rate must revert to the "full" rate.
|
Bob Yuran, Chief Financial Policy Staff |
Attachment
Download the Letter and Attachment as a PDF File
2002 Benefits Administration Letters | Benefits Officers Resource Center Home Page | Insurance Programs Home Page | OPM Home Page
Attachment
Hypothetical Illustration of Correct and Incorrect Procedures for Withholding of CSRS Contributions for Offset Employees Participating in HB-PC
Mathew Dean is an offset employee who participates in HB-PC. He has basic pay of $4,000 per pay period and has a pre-tax deduction of $150 for FEHB premiums.
Procedure A in the following table demonstrates the correct CSRS withholding for a pay period where total OASDI wages for the calendar year have not exceeded the SSWB ($80,400 in 2001). Procedures B and C provide samples of incorrect procedures.
| Procedure A (Correct) | Procedure B (Incorrect) | Procedure C (Incorrect) | |
|---|---|---|---|
| Basic pay | 4,000.00 | 4,000.00 | 4,000.00 |
| FEHB deduction | 150.00 | 150.00 | 150.00 |
| OASDI wages | 3,850.00 | 3,850.00 | 3,850.00 |
| CSRS @7.0% | 10.50 | 0.00 | 0.00 |
| CSRS @0.8% | 30.80 | 32.00 | 30.80 |
| OASDI withholdings | 238.70 | 238.70 | 238.70 |
| Total withholdings (CSRS plus OASDI) | 280.00 | 270.70 | 269.50 |
| Total withholdings (% of basic pay) | 7.00 | 6.77 | 6.74 |
Procedure A is correct. The APO has applied the full (7.0%) withholding rate to Mathew's pre-tax FEHB deduction and the reduced (0.8%) withholding rate to his basic pay less his FEHB deduction. By so doing, Mathew's combined CSRS and OASDI withholdings are properly 7.0% of his basic pay.
Procedure B is not correct. The APO has applied only the reduced (0.8%) withholding rate to Mathew's basic pay. By so doing, Mathew's combined CSRS and OASDI withholdings are less than 7.0% of his basic pay. The APO has under-withheld for CSRS and overpaid Mathew.
Procedure C is also not correct. The APO has applied the 0.8% withholding rate to Mathew's OASDI wages. By so doing, Mathew's combined CSRS and OASDI withholdings are less than 7.0% of his basic pay. The APO has under-withheld for CSRS and overpaid Mathew.
The following two tables demonstrate correct and incorrect CSRS withholdings for the pay period during which total OASDI wages for the calendar year have reached the SSWB ($80,400 in 2001).
The following table illustrates the INCORRECT procedure. Mathew's CSRS withholdings have reverted to 7.0% when his total basic pay for the calendar year reached the SSWB. By so doing, Mathew's combined CSRS and OASDI withholdings are 11.65% for the pay period.
| INCORRECT | YTD (beginning of PP) | Basic pay reaches SSWB | OASDI wages reach SSWB | After SSWB | Total PP | YTD (end of PP) |
|---|---|---|---|---|---|---|
| Basic pay | 80,000.00 | 400.00 | 3,150.00 | 450.00 | 4,000.00 | 84,000.00 |
| FEHB deduction | 3,000.00 | 150.00 | 0.00 | 0.00 | 150.00 | 3,150.00 |
| OASDI wages | 77,000.00 | 250.00 | 3,150.00 | 0.00 | 3,400.00 | 80,400.00 |
| CSRS @7.0% | 0.00 | 0.00 | 220.50 | 31.50 | 252.00 | 252.00 |
| CSRS @0.8% | 640.00 | 3.20 | 0.00 | 0.00 | 3.20 | 643.20 |
| OASDI withholdings | 4,774.00 | 15.50 | 195.30 | 0.00 | 210.80 | 4,984.80 |
| Total W/H ($) | 5,414.00 | 18.70 | 415.80 | 31.50 | 466.00 | 5,880.00 |
| Total W/H (%) | 6.77 | 4.68 | 13.2 | 7.0 | 11.65 | 7.00 |
The following table illustrates the CORRECT procedure. Mathew's CSRS withholdings have reverted to 7.0% when his total OASDI wages for the calendar year reached the SSWB. By so doing, Mathew's combined CSRS and OASDI withholdings are properly 7.0% of his basic pay for this pay period.
| CORRECT | YTD (beginning of PP) | OASDI wages reach SSWB | After SSWB | Total PP | YTD (end of PP) |
|---|---|---|---|---|---|
| Basic pay | a 80,000.00 | d 3,550.00 | 450.00 | 4,000.00 | 84,000.00 |
| FEHB deduction | 3,000.00 | d 150.00 | 0.00 | 150.00 | 3,150.00 |
| OASDI wages | b 77,000.00 | c 3,400.00 | 0.00 | 3,400.00 | 80,400.00 |
| CSRS @7.0% | 210.00 | e 10.50 | g 31.50 | 42.00 | 252.00 |
| CSRS @0.8% | 616.00 | f 27.20 | 0.00 | 27.20 | 643.20 |
| OASDI withholdings | 4,774.00 | 210.80 | 0.00 | 210.80 | 4,984.80 |
| Total withholdings ($) | 5,600.00 | 248.50 | 31.50 | 280.00 | 5,880.00 |
| Total withholdings (%) | 7.00 | 7.00 | 7.00 | 7.00 | 7.00 |
- YTD basic pay subject to CSRS withholdings at the beginning of the pay period is $80,000.
- The basic pay that has already been subject to OASDI is $77,000.
- Another $3,400 will be subject to OASDI withholding before OASDI wages reach the SSWB.
- To reach the $3,400 subject to OASDI, Mathew must earn $3,550 in basic pay, because $150 of that basic pay is exempt from OASDI taxation under HB-PC.
- Of the $3,550, the $150 in HB-PC is subject to the full 7% CSRS withholding because it is not subject to OASDI withholding [$150 x .07 = $10.50].
- The $3,400 is subject to the 0.8% CSRS withholding rate [$3,400 x .008 = $27.20].
- This leaves $450 [$4,000 - $3,550] that is not subject to OASDI withholding because the SSWB has been reached, but is, nonetheless, basic pay. Therefore, it is subject to the full 7% CSRS withholding [$450 x .07 = $31.50].