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Reservists, Guard May Be Eligible for Cash Back From FICA

By Sgt. 1st Class Doug Sample, USA
American Forces Press Service

WASHINGTON, June 29, 2004 – An interpretation of a government rule may mean that mobilized National Guard and Reserve members and their employers may be in for a refund on some taxes the employers paid the federal government.

While researching last year for a slide presentation on tax rules for deployed National Guard members and reservists, retired Army Reserve Lt. Col. Frank Scattene, a certified public accountant, stumbled upon an interesting fact.

He read on an Internal Revenue Service Web site about a government rule stating Guard and Reserve service members 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.

Scattene, who is associated with the Lehigh Valley Military Affairs Council, a nonprofit, tax-exempt Pennsylvania corporation that assists National Guard and Reserve members, soon learned of several cases of service members who had employers taking out the tax erroneously.

"The reservists didn't know the rule; neither did the employers," he said.

Although supplemental wages are not subject to FICA 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 who had FICA taxes erroneously withheld while on extended active duty should request reimbursement from their employer.

"Individuals who had an employer erroneously withhold the FICA 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 would receive not only the employee's share of the erroneously paid FICA tax, but also the employer's share, he explained.

"Employers should want to do this, since they would get their half of the FICA tax back as well," he added.

However, Spruell further explained that 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 noted that if the employer is unable or unwilling to file the tax forms, the Guard and Reserve members can obtain forms from the IRS. And he advised that it would also be helpful to consult a tax expert.

"If I had not been researching this to give the presentation to make it thorough, I probably would not have thought about it," Scattene said. Refunds could range from a few hundred dollars to several thousand, depending on income, he added.

"This appears to be fairly widespread," he said. "There are probably a lot of people who are not getting this money in their pockets."

Since Sept. 11, 2001, some 360,000 members of the National Guard and Reserve have been mobilized to support the global war on terrorism, including operations in Afghanistan and Iraq.

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Related Sites:
Manpower and Personnel Directorate, Office of the Assistant Secretary of Defense for Reserve Affairs
Internal Revenue Service
Employer's Frequently Asked Questions for Employees in Combat Zone
Tax Information for Members of the U. S. Armed Forces

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