Guard and Reserve May Get FICA Break

National Guard, Jul 2004

Mobilized National Guardsmen and Reservists and their employers may be in for a refund on some taxes employers paid the federal government.

While researching last year for a slide presentation on tax rules for deployed Guardsmen and Reservists, retired Army Reserve Lt. Col. Frank Scattene, a certified public accountant, noted an Internal Revenue Service rule stating members of the Guard and Reserve were exempt from paying taxes on "supplemental income" used by employers to pay into such programs as Medicare and Social Security under the Federal Insurance Contribution Act and Federal Unemployment Tax Act.

According to Scattene, the IRS doesn't consider the supplemental wages as taxable income because they are not paid for services rendered to the civilian employer.

Although supplemental wages are not subject to PICA taxes, the payments still are income to the Guard and Reserve members and are subject to income tax, he said.

Wayne Spruell, principal director for manpower and personnel for the assistant secretary of defense for reserve affairs, said Guard and Reservists FICA taxes erroneously withheld while on extended active duty should request reimbursement from their employer.

"Individuals who had an employer erroneously withhold the PICA tax cannot receive it back by amending their tax return," he said.

He said employers may file an amended tax return, using Form 941 to seek proper adjustment under special rules of Section 6413 of the Internal Revenue Code and Treasury Regulations 31.6413(a)-2.

Under this procedure, the employer receives not only the employee's share of the erroneously paid FICA tax, but also the employer's share, he said.

However, Spruell said if the employer declines to reimburse the FICA, the Guard or Reserve member may file a refund claim using IRS Form 843.

"They will still need to contact the employer and get a statement that the employer is not seeking reimbursement of the FICA taxes," he said.

Spruell advised that it would also be helpful to consult a tax expert.