Most federal/postal workers hired after next Jan. 1 would get a 100 percent tax credit for money they kick into the civil service retirement fund under legislation introduced yesterday in the Senate and the House.
The purpose of the proposed tax break, which will make current feds green with envy, is to soften the paycheck bite for those new civil servants.
Starting next year, new U.S. employes will have 14 percent taken from their salaries: Seven percent will be for the civil service retirement program and another seven will go to social security.
Bills introduced by Rep. Bill Ford (D-Mich.) and Sen. Ted Stevens (R-Alaska) would allow those new employes a tax break on their federal retirement contributions through the end of 1985, or until Congress sets up a supplemental retirement plan for them, whichever comes first.
If Congress okays the proposal, a hypothetical employe who contributed $1,500 into the government retirement program would be able to deduct the full amount from whatever he or she owes the IRS at income tax time.
If the employe was due a refund, the amount of the retirement contribution would be added to the refund.
The tax credit benefit would not apply to those of you already working for the government or to people hired this year.
Current federal employes--with a few exceptions--are not required to pay the full social security tax on their government salaries. They pay the 1.3 percent Medicare tax, but not the full social security deduction.
Starting next year, all new people coming on the federal payroll--from the president to the janitor--will be required to pay the full social security tax (7 percent on amounts up to $37,500) as well as the 7 percent to the civil service retirement fund.
The bill by Stevens and Ford, joined by Rep. Mike Barnes (D-Md.), would let those new workers get back via a tax credit the full amount of money they pay into the civil service program.
Ford's bill would not extend the tax credit to the president, vice president, members of Congress or current political appointees. Stevens' measure would exclude only the president, vice president and members of Congress.
Many people in government and in employe unions have been concerned that the 14 percent bite could harm recruiting.
This temporary tax credit plan is proposed because there is no chance this year that Congress will enact a supplemental retirement program for new hires that would dovetail the federal retirement program with social security. Most other American workers, whether they have a retirement plan or not, are required to pay into social security.
The bill already has bipartisan support. Ironically, it has no constituency as yet. The people who would benefit from it have not, in most cases, even applied for a government job.
But it could be very important later on as the economy steadily improves and the number of people lining up for government jobs begins to dwindle.