Activated Guard, Reserve may be due FICA refund
July 3, 2004
ARLINGTON, Va. — Reserve and National Guard members whose civilian employers are continuing to pay them a salary while they are deployed may be due a partial tax refund from the federal government, according to Pentagon officials.
Among the Internal Revenue Service’s myriad tax rules is one that exempts activated Guard and Reserve servicemembers from paying Federal Insurance Contribution Act, or FICA, taxes on any supplemental income.
Supplemental income is the partial salary that some employers keep paying to activated employees, in order to make up any differences between the money they receive from the U.S. military and their civilian wages.
No law requires employers to make such payments, according to Wayne Spruell, principal director for manpower and personnel for the assistant secretary of defense for reserve affairs.
“But we know a goodly number of employers will make up part of the difference,” Spruell said in a Thursday telephone interview.
Although their military wages are tax-free as long as the servicemember is deployed, reservists who are receiving supplemental payments from their civilian employers still have to pay income taxes on that money.
However, a retired Army Reserve officer, Lt. Col. Frank Scattene, was poring over the tax code this spring when he found a provision that appeared to indicate that the IRS does not consider supplemental wages as “payments for services rendered,” which means FICA does not apply, Spruell said.
Scattene, a certified public accountant who works with the Lehigh Valley Military Affairs Council, a nonprofit Pennsylvania advocacy organization, contacted Spruell’s office with his findings in late April.
Spruell asked DOD lawyers to bring the possible exemption to the attention of the Defense Department’s Tax Council, which deals with matters concerning the armed forces’ federal, state, local and foreign tax liabilities.
After discussing the matter with counterparts in the IRS, attorneys on the council declared the exemption to be valid, Spruell said.
“We’ve had our tax lawyers look at it … and it’s been confirmed by our attorneys that this is, in fact, how the IRS interprets the law,” Spruell said.
Employers, which pay a portion of each worker’s FICA taxes, are responsible for filing documents that will result in refunds from the IRS.
Refunds to employees would vary from a few hundred to thousands of dollars, depending on how much supplemental income the employee is receiving and how long the employer has been taking out FICA by mistake, Spruell said.
How to get your FICA back
• Reserve component members who think they may be due a refund should look at their civilian pay-stubs to see if any FICA taxes have been taken out.• If FICA has been paid, contact your civilian employer and explain that both of you are due refunds (employers pay a portion of FICA taxes).• Ask your employer to seek a refund by filing an amended tax return using IRS Form 941. Your employer is then responsible for reimbursing you for the taxes paid from your wages.• If for some reason the employer refuses to file an amended return, you may file a refund claim using IRS Form 843. Your employer will still need to sign a statement that says he is not seeking reimbursement of the FICA taxes.• IRS forms can be downloaded at: www.irs.gov/formspubs• For assistance or questions, contact your unit’s financial office, or a qualified tax adviser.
— Source: Office of the Assistant Secretary of Defense for Reserve Affairs