Federal Personnel and Payroll System (FPPS)

MEMORANDUM

DATE:

September 22, 2022

TO:

Federal Personnel and Payroll System User Group Representatives

FROM:

Christine Zertuche-Rocha, Chief

Payroll Operations Division

SUBJECT:

Updated State, City and County Income Tax Withholding related to Official Duty Station

Please share the following information with your agency Servicing Personnel Officers (SPO), Payroll Coordinators/Liaisons and all employees, especially those who live and have an official duty station in different states.  Neither the Interior Business Center (IBC) nor the Customer Support Center (CSC) are qualified to provide tax advice.  This memo is not intended to provide legal, tax or accounting advice, and employees should consult their tax advisors concerning the applications of tax laws to any particular situation.  Over the past two years, changes to the Federal workplace have taken place.  In response to growing interest in telework and remote work, Office of Personnel Management (OPM) issued 2021 Guide to Telework and Remote Work in the Federal Government.

As a result of the workplace flexibilities, IBC has seen an increase in inquiries from employees, supervisors, and agencies regarding state tax withholding.  The Federal Personnel and Payroll System (FPPS) withholdings and reports taxes based on an employee’s official duty station in compliance with Title 31 Code of Federal Regulations (CFR) Part 215.  This CFR addresses the agreements between the Secretary of the Treasury and states, cities, and counties that prescribe how federal agencies are required to withhold income or employment taxes from the compensation of federal employees based on their “Regular place of Federal employment”, which means the official duty station where an employee actually and normally performs services, irrespective of residence.  An employee’s address in FPPS is not a factor in tax withholding.    

It is important that it is communicated to employees that the agency, not the IBC, determines the official duty station, to include remote workers and employees covered by a telework agreement.  Employees can view their duty station on their Standard Form 50, Notification of Personnel Action, block 39 reflecting their city, county, and state.  As a reminder, FPPS withholds taxes based on official duty station, which is determined by the agency.  For this reason, we are unable to have conversations with individual employees to address tax withholding, which is determined by the aforementioned CFR.  We encourage agencies to share the CFR with their employees when they get questions as to the reason for tax withholding.  If employees continue to have additional questions on their tax liability based on their duty station, we recommend they contact the applicable taxing entity as IBC is unable to answer any questions as that outside of our purview.    

Some states have a reciprocal agreement, also called reciprocity, which is an agreement between two states that allows residents of one state to request exemption from tax withholding in the duty station. 

If an employee lives in a different state than their official duty station, and the states has a reciprocal agreement, the employee can request, through their SPO or Payroll Coordinators/Liaisons, to stop withholding for their duty station and open a state tax record based on their state of residence as these tax changes cannot be made in Employee Express.  This may save employees from having to file multiple state tax returns.  The IBC requires SPO or Payroll Coordinators/Liaisons to make these changes as they can confirm or make changes to a duty station, work with the hiring manger if an employee questions their duty station, update tax records, etc. 

The table below lists the state(s) that a particular state has a reciprocal tax agreement with as of the date of this memo.

The IBC will not make changes to an employee’s tax records or taxes based on an employee’s inquiry.  If an SPO or Payroll Coordinators/Liaisons make changes to state, city and/or county tax records, and taxes need to be moved, the information below details how corrections can be submitted: 

• The SPO or Payroll Coordinators/Liaisons should complete the Form A-36, Authorization to Move/Refund State Taxes and/or Wages, notating which pay period the change is effective for and whether it is current or prior year.
  • Fax the Form A-36 to the IBC’s CSC at 303-969-5463
  • Payroll Operation Branch will process within 35 days
  • Current year
    • Taxes and wages can be moved
  • Prior year
    • We are unable to issue a refund of state, city and/or county tax withholdings from a previous year. As a result, we will issue a Form W-2C, Corrected Wage and Tax Statement, with adjustments to wages only. 
      • An employee would need to file a state, city and/or count tax return with the tax entity in question to request a refund of the taxes.

It is an employee’s responsibility to know their tax liabilities.  We strongly encourage employees to review their Leave and Earnings Statement (LES) often to ensure taxes are being withheld for the correct state, city and/or county.  If an employee believes there is an error in state, city and/or county tax withholdings, they should contact their SPO or Payroll Coordinators/Liaisons to determine if updates may need to be made within FPPS.  As a reminder, annually, we sound out a user group memorandum with the subject ‘Payroll Reminder for Year End YYYY and New Year YYYY’, in which we ask agencies to remind their employees to review their LES to ensure state and local taxes are properly being withheld.  You can view 2021’s memo at this link. 

If there are any questions, employees can contact the IBC CSC at 720-673-9958 (interim contact number) or by email at Payroll_Helpdesk@ios.doi.gov.  As a reminder, neither the IBC nor the CSC are qualified to provide tax advice.  This memo is not intended to provide legal, tax or accounting advice, and employees should consult their tax advisors concerning the applications of tax laws to the particular situations. 

Resources:

• FPPS - Customer Central
  • User Group Messages - All
    • User Group Payroll Announcements
• User Group Distribution List changes: Please contact Lorraine Manzanares, Lorraine_M_Manzanares@ibc.doi.gov. All requests should come from an Agency User Group Representative.