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Federal Employees News Digest : Jan. 28, 2013
January 28, 2013 Vol. 62, No. 26 7 Visit us on the Internet at www.FederalDaily.com Effective Jan. 1, 2013, newly hired employees covered by the Federal Employees Retirement System (FERS) are contributing more of their salaries to FERS. Also effective Jan. 1, 2013, those employees who are covered by Social Security---this includes all FERS employees and CSRS Offset employees---are contributing 6.2 percent of their gross wages (called the Federal Insurance Contributions Act, or FICA tax) to Social Security. During 2011 and 2012, the FICA tax was reduced by 2 percentage points to 4.2 percent. This column discusses what these changes mean to affected employees. The first change---the increase in employee FERS contri- butions for newly hired FERS employees---came about as a result of the passage of Public Law 112-96, Section 5001, the Middle Class Tax Relief and Job Creation Act of 2012. This law made two significant changes to FERS: (1) newly hired employees and members of Congress and congres- sional employees will be covered under FERS as Revised Annuity Employees, or FERS-RAE; and (2) new members of Congress and congressional employees will also accrue retirement benefits at the same rate as regular employees. FERS-RAE coverage applies to any employee who receives an appoint- ment not excluded from FERS coverage on or after Jan. 1, 2013, and who would normally be placed in FERS. There are three exceptions to this general rule that focus on Dec. 31, 2012, as the key date to these exceptions. The following employees are excluded from FERS-RAE coverage: (1) an employee who was covered under FERS as of Dec. 31, 2012; (2) an employ- ee who was performing civilian service which was creditable or potentially creditable under FERS as of Dec. 31, 2012; this includes employees who are covered under retirement systems from which service credit may be transferred to FERS, such as CSRS, CSRS Offset, Foreign Service or Federal Reserve; or (3) an employee hired after Jan. 1, 2013, who as of on Dec. 31, 2012, was not covered under FERS, and was not performing civilian service which is creditable or potentially creditable service under FERS, but who prior to Dec. 31, 2012, had previously performed at least five years of civil- ian service creditable or potentially creditable under FERS, including service subject to CSRS or CSRS Offset. The following three examples illustrate which employees are covered by FERS and which are covered by FERS-RAE: Example 1. Paul was hired at a federal agency and his first day of service was Jan. 14, 2013. Paul had no prior federal service. Paul is covered by FERS-RAE. Example 2. Since March 1, 2003, and as of Dec. 31, 2012, Carol was working overseas in the Foreign Service. Should Carol return to the United States and work under FERS, she will be covered by FERS. Example 3. Jean was first hired as a federal employee with FERS on Nov. 2, 1990. She worked for eight years and left federal service on Oct. 31, 1998. She was rehired on Jan. 14, 2013. Even though Jean withdrew her FERS contributions when she left federal service in 1998, she had more than five years of creditable service as of Dec. 31, 2012, and is therefore covered by FERS. Tables 1 and 2 below summarize the contribution rates--- by employees and agencies---for employees covered by FERS and FERS-RAE. Note that under FERS-RAE, employees contribute 2.3 percent more of their salary to FERS, while agencies contribute 2.3 percent less of an employee's gross salary to FERS. The other change that affects all FERS employees and CSRS Offset employees is that the FICA tax rate increases from the 4.2 percent rate that was in effect during 2011 and 2012 to 6.2 percent during 2013. The maxi- mum amount of wages subject to the FICA tax increases from $110,100 during 2012 to $113,700 in 2013. Most FERS employees likely will find that their net (take-home) pay will decrease during 2013. For example, if an employee's gross salary is $80,000 during 2013, then the additional 2 percent in FICA tax results in about $62 less take-home pay each pay date compared to what it was during 2012. For an employee earning more than $113,700 during 2012, the FICA tax increase results on average in $87 less in take-home pay each pay date com- pared to what it was during 2012. Edward A. Zurndorfer is a Certified Financial Planner and Enrolled Agent in Silver Spring, MD. He is also a registered representative with FSC Securities Corporation, branch address: 833 Bromley St. - Suite A, Silver Spring, MD 20902. Phone: (301) 681-1652. Securities offered through FSC Securities Corporation,member FINRA/SIPC. EZ Accounting and Financial Services and FSC are independent companies. Informed Investor New hires contributing more to FERS; FICA tax reverts to 6.2 percent Table 1. FERS Contribution Rates Employee Category* Retire- ment Plan Code Normal Cost (%)** Employee Contribution (%)** Agency Contribution Regular K 12.7 0.8 11.9 Law Enforcement Officer/ Firefighter M 27.6 1.3 26.3 Air Traffic Controller L 27.3 1.3 26.0 Military Reserve Technician N 15.7 0.8 14.9 Member Of Congress - 19.6 0.8 18.3 Congressional Employee - 18.0 1.3 16.7 Table 2. FERS-RAE Contribution Rates Employee Category* Retire- ment Plan Code Normal Cost (%)** Employee Contribution (%)** Agency Contribution Regular KR 12.7 3.1 9.6 Law Enforcement Officer/ Firefighter MR 27.6 3.6 24.0 Air Traffic Controller LR 27.3 3.6 23.7 Military Reserve Technician NR 15.7 3.1 12.6 Member Of Congress - 12.7 3.1 9.6 Congressional Employee - 12.7 3.1 9.6 *Other employee categories may apply; employees should check with their personnel offices. ** Percentage of salary as shown on employee's SF 50.
Jan. 21, 2013
Feb. 4, 2013