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IRS, DoD Encourage Improved Tax Compliance by Federal Workers

By Donna Miles
American Forces Press Service

WASHINGTON, May 18, 2005 – The Internal Revenue Service has asked the Defense Department to help ensure that DoD federal civilians receiving pay or retirement checks from Uncle Sam also pay him his due in federal income taxes.

Federal employees and retirees tend to pay their federal taxes at a higher rate than the general public, but still don't always fully comply with the tax laws, IRS Commissioner Mark Everson said in letters to Defense Secretary Donald H. Rumsfeld and the service secretaries.

That can undermine the U.S. tax system that relies on voluntary compliance, he said.

"If the public perceives that federal employees do not maintain the highest level of tax compliance, public confidence in government will suffer," he said.

An IRS analysis showed that, as of October 2004, the delinquency rate for civilian employees of federal agencies and departments was 3.8 percent.

The rate for DoD federal employees was slightly higher, at 5 percent, Everson reported in a letter to Rumsfeld. That rate was up from 4.8 percent in October 2003, he said.

"In all instances, we have attempted to contact these individuals," he told the secretaries. "Although many of them are attempting to resolve their tax problems, some are not."

In response, the Defense Department is working to get the word out to its civilian employees and retirees that they're required by law to pay their federal income taxes.

A two-line message on recent civilian leave and earning statements reminded employees in arrears with their tax bills to contact the IRS, according to Claudia Bogard of the Defense Finance and Accounting Service.

DoD civilian policy officials said stronger measures are possible. Employees who fail to pay their taxes can have their pay garnished, and outstanding tax debts can also affect their ability to obtain or maintain a security clearance.

Current tax delinquency rates for active-duty military people was not available, because troops serving in a combat zone are entitled to extensions for filing their tax returns, according to Emilie Frazier, a senior IRS policy analyst. However, of all categories of federal employees, she added, active-duty servicemembers generally have the highest rate of tax compliance.

However, the rate for military retirees is less stellar, Frazier said. Part of the problem, she said, could be that military retirees aren't aware that their pensions are federally taxable. Another could be that there's no requirement that they automatically withhold federal taxes from their retirement pay, she said.

The IRS is conducting an outreach program to inform retired military employees about their tax responsibilities, Frazier said.

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