Reservists, guardsmen may be eligible for FICA refund

  • Published
  • By Army Sgt. 1st Class Doug Sample
  • American Forces Press Service
WASHINGTON (AFPN) --  An interpretation of a government rule may mean that mobilized National Guardsmen, reservists and their employers may get a refund on some taxes paid to the federal government.

While researching tax rules for deployed National Guardsmen and reservists, retired Army Reserve Lt. Col. Frank Scattene, a certified public accountant, stumbled upon an interesting fact.

A tax law cited on an Internal Revenue Service Web site states Guard and Reserve servicemembers are exempt from paying taxes on "supplemental income" used by employers. The taxes are used to pay into programs such as Medicare and Social Security under the Federal Insurance Contribution Act and Federal Unemployment Tax Act.

The IRS does not consider the supplemental wages as taxable income because they are not paid for services rendered to the civilian employer, Colonel Scattene said.

Colonel Scattene, who is associated with the Lehigh Valley Military Affairs Council, a nonprofit, tax-exempt Pennsylvania corporation that assists National Guardsmen and reservists, soon learned of several cases of servicemembers 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 guardsmen and reservists and are subject to income tax, he said.

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

"Individuals who had an employer erroneously withhold the FICA tax cannot receive it back by amending (his or her) tax return," he said.

Employers may file an amended tax return, using Form 941 to seek proper adjustment, Mr. Spruell said.

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 said.

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

However, Mr. Spruell said if the employer declines to reimburse the FICA, the guardsman or reservist 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.

If the employer is unable or unwilling to file the tax forms, guardsmen and reservists can obtain forms from the IRS, Mr. Spruell said. He advised that it would also be helpful to consult a tax expert.

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

"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, about 360,000 guardsmen and reservists have been mobilized to support the war on terrorism, including operations in Afghanistan and Iraq.