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Chapter 04A – Deductions

Volume XV - Payroll

Date Approved: November 16, 2023

Financial Documents

Volume XV - Payroll

Chapter 04A – Deductions

Questions concerning this policy chapter should be directed to:

0401 Overview

This chapter establishes the Department of Veterans Affairs’ (VA) financial policies regarding deductions from salary payments. VA Handbook 5007, Part VIII, Chapter 10, Allotments and Assignments from Pay, provides information on allowed deductions.

Key points covered in this chapter are:

  • The required and voluntary deductions available; and
  • Guidance on the order of precedence for deductions.

0402 Revisions

SectionRevisionOfficeReason for ChangeEffective Date
0404 and throughoutRemove one role not in policy text; other minor editsOFP (047G)Copying changes approved to Chapter 3A; formatNovember 2023
See changelog for previous policy revisions.

0403 Definitions

Civil Service Retirement System (CSRS) – The defined benefit, contributory retirement system created for Federal employees in 1920. Employees covered under CSRS are excluded from Old Age, Survivors and Disability Insurance (OASDI) taxes (i.e., social security). The Federal Government has phased out CSRS for newly hired employees. All retirement-eligible employees first hired on or after January 1, 1984, participate in Federal Employees Retirement System (FERS).

CSRS Offset Plan – A retirement plan for employees who were under CSRS, left retirement coverage in Federal service for more than 1 year, and were then rehired into a retirement-eligible appointment after 1983, which is past the CSRS cut-off date. The benefits under this plan are similar to CSRS benefits except the employees pay OASDI as well as a reduced CSRS contribution. Employees contribute to OASDI (up to maximum taxable wage base) and CSRS Offset retirement. The retirement contribution increases to the full CSRS rate when wages exceed the maximum taxable OASDI wage base.

Combined Federal Campaign (CFC) – A charity program open to contribution from Federal employees.

Defense Civilian Pay System (DCPS) – Payroll processing system operated by Defense Finance and Accounting Service.

Defense Finance and Accounting Service (DFAS) – Entity within the Department of Defense (DoD) that provides finance and accounting services for DoD and other Federal agencies. DFAS is the payroll service provider for VA.

Distraint – Refers to the seizure and holding of property as security for payment of a debt or satisfaction of a claim.

Federal Employees Retirement System (FERS) – FERS is a three-tiered system based on OASDI (Social Security) with a defined benefit, contributory retirement benefit plan, and a Thrift Savings Plan (TSP) retirement savings program. FERS Revised Annuity Employee (FERS RAE) and FERS Further Revised Annuity Employee (FERS FRAE) are variations of the FERS retirement plan with different contribution rates.

Federal Insurance Contributions Act (FICA) – Law that requires, and term that describes, deductions for OASDI (social security) and Medicare (hospital insurance) taxes from employee pay and from employers under 26 U.S.C. Chapter 21.

Flexible Spending Account (FSA) – An account that provides potential pre-tax reimbursement for 1) childcare or adult dependent care expenses (DCFSA) allowing an employee or their spouse to work, look for work or attend school full-time, or 2) health care expenses (HCFSA).

Health Savings Account (HSA) – An account designed to help individuals covered under a High Deductible Health Plan save for future qualified medical and health expenses on a tax-free basis. See Internal Revenue Service (IRS) Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans, for additional information.

Levy – As used in 26 U.S.C. § 6331, the term “levy” includes the power of distraint and seizure by any means. Individuals with unpaid IRS tax bills may be subject to a continuous levy on money due them from the Federal Government. For more information, see IRS Publication 594, The IRS Collection Process.

Master Record – An individual employee record in HR and payroll systems containing pay rate, leave eligibility, and other data required for payroll processing.

Non-Appropriated Fund (NAF) Retirement – Defined benefit retirement plans managed by military service branches. Some former Department of Defense (DoD) employees who worked in military exchanges and morale, welfare and recreation programs may maintain NAF retirement plan coverage through employment in other Federal agencies instead of changing to a retirement plan managed by Office of Personnel Management.

Retirement Deduction – Deduction from basic pay for CSRS under 5 U.S.C. § 8334(a), CSRS Offset under 5 U.S.C. § 8334(k), or FERS under 5 U.S.C. Chapter 84 to help fund those defined benefit programs.

Thrift Savings Plan (TSP) – A defined contribution retirement savings and investment plan for Federal employees.

0404 Roles and Responsibilities

VA and Defense Finance and Accounting Service (DFAS) share responsibility for ensuring that each employee’s record properly identifies required and voluntary deductions authorized, and the necessary information for processing those deductions. DFAS manages Defense Civilian Pay System (DCPS) operations that automate pay and deduction calculation, prioritization of deductions and payment processing.

Under Secretaries, Assistant Secretaries, Other Key Officials (OKO), as identified in Volume I, Chapter 1)) and Chief Financial Officers are responsible for ensuring compliance with the policies set forth in this chapter.

Chiefs/Directors/Officers, Human Resources, are responsible for providing appropriate levels of advice and assistance to employees, beneficiaries, supervisors and fiscal/finance employees regarding laws, regulations and policy covering HR issues, including interpretation of rules relating to hours of duty, pay, leave and authorization of deductions from pay. HR Officers are also responsible for ensuring HR data is accurate and entered into automated HR systems that interface with payroll and timekeeping systems in a timely manner.

Defense Finance and Accounting Service (DFAS) is VA’s designated payroll provider (except for VA Office of Inspector General staff). DFAS processes payroll, makes all employee deductions and disbursements, generates the Leave and Earnings Statement (LES) and W-2 files, charges VA appropriations and cost centers and reports payroll related financial information to Treasury on behalf of VA.

Employees are responsible for the prompt submission of leave requests in accordance with HR leave administration policy, reviewing their timesheet and their LES for accuracy, and for promptly notifying:

  • Their supervisor and timekeeper of timesheet discrepancies regarding leave charges, telework and extra work time; and
  • HR or payroll representatives of other pay, leave and deduction discrepancies.

Employees are also responsible for informing themselves regarding tax withholding requirements, and for submitting applicable tax withholding election certificates to the servicing payroll office or updating tax withholding elections in myPay.

Servicing Payroll Offices (either centralized as in Financial Services Center (FSC) and Veterans Integrated Service Network 20, or facility based) are responsible for training timekeepers and supervisors on timekeeping system functions and for working with timekeepers, supervisors and other employees to resolve pay and leave discrepancies and with auditors on annual records audits. Servicing payroll offices are responsible for ensuring prompt adjustment processing, deduction input and maintaining accurate and secure timekeeping and payroll records.

Supervisors are responsible for accuracy of employee pay and leave status recorded in the Time and Leave (T&L) system. This includes but is not limited to:

  • Ensuring that timekeepers are promptly notified of information needed to maintain accurate and complete T&L records;
  • Managing employee leave and overtime work and ensuring prompt completion of necessary supporting request and approval documentation;
  • Ensuring that timekeepers have sufficient time for daily maintenance of (T&L) records, and for completing such records at the end of the pay period to ensure timesheets are certified by 8 p.m. Central Time on the second Friday of each pay period unless an earlier deadline is announced by FSC Financial Payroll Service (FPS);
  • Approving and certifying automated T&L records through electronic signature; approving and certifying paper T&L records as applicable; and
  • Seeking HR entitlement guidance when unsure and denying questionable transactions pending resolution of concerns.

0405 Policies

040501 General Policies

  1. Deductions from an employee’s pay will be consistent with master record data entered by VA, employee self-service elections and court or legislative requirements, subject to the order of precedence established by Office of Personnel Management (OPM). DFAS will pay amounts withheld to the designated recipient on behalf of VA and VA employees.
  2. Authorized deductions and changes will be entered no later than the pay period following receipt of valid documentation, subject to system limitations, unless later entry is specified.
  3. DFAS will maintain an electronic record of employee elections regarding deductions through the self-service system and will maintain court-ordered and other valid involuntary offset orders and tax levy documents.
  4. The VA servicing payroll office will maintain documentation supporting employee elections for other deductions submitted to that office, except demands for involuntary salary offset from third parties which need redirection to DFAS.

040502 Types of Required Deductions

  1. VA and DFAS will comply with regulations issued by the responsible Federal agency or entity (e.g., Social Security Administration, Thrift Investment Board, OPM and Internal Revenue Service (IRS)) regarding deductions payable to, or as required by, those agencies.
  2. OPM manages CSRS, CSRS Offset, and FERS retirement plans and issues guidance for all retirement plans.
    1. All CSRS, CSRS Offset, and FERS employees can participate in the TSP; however, only FERS employees receive agency contributions to their TSP accounts. All employees under CSRS, CSRS Offset, and FERS contribute to Medicare.
    2. DoD military service branches independently manage Non-Appropriated Fund (NAF) retirement plans and NAF retirement savings plans.
    3. Retirement deduction priority also applies to reemployed annuitant salary offset. See Volume XV, Chapter 2A, Payroll: Payments, for additional information.
  3. HR will identify OASDI and Medicare tax withholding requirement in accordance with 26 U.S.C. Chapter 21 in establishing or editing the employee’s electronic master record.
  4. Federal income tax will be deducted in accordance with 26 U.S.C. § 3402 and the IRS prescribed rates and guidance related to Federal income tax withholding in IRS Circular E, Employer’s Tax Guide.
    1. VA employees will complete IRS Form W-4, Employee’s Withholding Allowance Certificate, or submit their election in the self-service system. VA will update the employee’s master record in accordance with an employee election unless directed otherwise by IRS.
    2. If an employee fails to submit an IRS Form W-4, and is subject to Federal income tax, DCPS will recognize a single filing status with no dependent credit or other information to impact withholding.
    3. When payroll staff are made aware that a lock-in letter (IRS demand for a specified withholding rate) has been received from the IRS, VA servicing payroll staff will monitor Federal tax information in employee payroll records. Unauthorized changes require servicing payroll staff to restore employee withholding information as directed by IRS.
  5. VA and DFAS in accordance with 5 U.S.C. § 5514 will adhere to due process notice of indebtedness procedures for billing and recovering salary overpayments.
  6. Employees may be subject to state income tax in accordance with 5 U.S.C. § 5517 or District of Columbia Income Tax in accordance with 5 U.S.C. § 5516. When moving to or working in a new state, employees should promptly determine change needs, request, and verify state (and local) income tax withholding changes, both to stop withholding no longer required for a prior state, and to begin withholding if required by the new residence or worksite state.
  7. Employees may be subject to local income tax or other municipal taxes or fees on salary payments or employment in accordance with 5 U.S.C. § 5520. VA employee award processing will regularly bypass deducting municipal income tax from award payments. Affected employees should contact the municipal taxing authority regarding how to pay the correct income tax on time.
  8. DFAS will receive and process valid wage garnishments for alimony and/or child support in accordance with 42 U.S.C. § 659 and 5 C.F.R. Part 581, Appendix A. Garnishment orders for civilian employees of the Department of Veterans Affairs should be sent to: Defense Finance and Accounting Service, Office of General Counsel, Attn: Garnishment Law Directorate, P.O. Box 998002, Cleveland, OH 44199–8002, Fax: 216–367–3675; Toll-Free Fax: 877–622–5930, Phone: 888–332–7411.
  9. DFAS will receive and process valid Federal tax levies in accordance with 26 U.S.C. § 6331.
  10. DFAS will receive and process valid commercial debt garnishment orders in accordance with 5 U.S.C. § 5520a and 5 C.F.R. Part 582.
  11. DFAS will receive and process valid bankruptcy orders for salary offset in accordance with 11 U.S.C. Chapters 7 and 13.

040503 Types of Voluntary Deductions

  1. Basic Federal Employee Health Benefit (FEHB) coverage in accordance with 5 U.S.C. Chapter 89, OPM administration and VA HR guidance. Newly hired employees can generally waive coverage and deductions, however participation can be required to extend health insurance to dependents, or to continue prior election through the next open season.
  2. Basic Federal Employee Group Life Insurance (FEGLI) (which can be waived) (5 U.S.C. § 8702(b)) in accordance with 5 U.S.C. Chapter 87, OPM administration, and VA HR guidance.
  3. Optional FEGLI (5 U.S.C. Chapter 87).
  4. Health Care Flexible Spending Accounts (HCFSA) (26 U.S.C. § 125).
  5. Dental and Vision Insurance (5 C.F.R. Part 894).
  6. Health Saving Account (HSA) (26 U.S.C. § 223); HSAs apply only for employees covered under a high-deductible health plan.
  7. Long Term Care Insurance (5 U.S.C. Chapter 90).
  8. Dependent Care FSA (DCFSA) (26 U.S.C. § 129).
  9. TSP (5 U.S.C. § 8432).
    1. FERS employees can contribute (i.e., have deducted) any amount of their basic pay to fund their TSP. Employees will receive a 1% government basic contribution and government matching contributions not to exceed an additional 4% of base pay in any pay period.
    2. CSRS and CSRS Offset covered employees may contribute to TSP, however they receive no government contributions to their TSP accounts.
    3. Retroactive adjustments are addressed in 5 C.F.R. Part 1605. See 5 C.F.R. § 1605.11 (c) for limits on employee makeup contribution commitments. Employee claims for correction of agency TSP error require agency reply normally within 30 days of employee claim or appeal, and employee response is due within 30 days of notice. See 5 C.F.R. § 1605.16 (d).
    4. Uniformed Services Employment and Re-employment Rights Act (USERRA) employees eligible to make up employee contributions or to receive employing agency contributions missed as a result of military service, in accordance with 5 C.F.R. § 1620.40, may submit a claim within 60 days of return to civilian pay status.
      1. Entitlement to agency automatic and agency matching contributions is based on the amount by which projected civilian pay exceeds the amount of military pay during military service, if any.
      2. The amount to credit in accordance with 5 C.F.R. § 1605.31 is reduced by contributions to a military TSP account for the same periods.
      3. Agency matching contributions for employees under FERS require that the employee make up missed employee contributions from future civilian pay.
  10. TSP Loan Repayment (5 U.S.C. § 8433(g)).
  11. Former military service members may pay a Military Service Deposit (MSD) for eligible prior military service wages to increase civilian retirement service credit (5 C.F.R. § 831.301).
  12. Service providers under OPM contract management for health insurance coverage other than the basic FEHB program will submit biweekly deduction requirements to DFAS for employees that enroll in benefit programs including dental, vision, and long-term care. The servicing payroll office will respond to employee inquiries about the history of transactions for these programs and Flexible Spending Accounts (FSA); employees will be directed to the service provider for other deduction inquiries. Servicing HR staff will provide information regarding benefits offered and service provider contacts.
  13. Veterans Canteen Service (VCS) will submit biweekly deduction elections through the Office of Information and Technology’s Enterprise Operations organization to DFAS for employee-contracted installment purchases. VCS installment purchase agreements require employee agreement to offset unpaid balances from final salary payments. The servicing payroll office will respond to employee inquiries regarding the history of deductions; employees will be directed to VCS for other deduction inquiries.
  14. Labor Union Dues (5 U.S.C. Chapter 71).
  15. Combined Federal Campaign (CFC) (5 C.F.R. § 550.341).
  16. Savings allotments (5 C.F.R. § 550.311(a)(5)).
  17. Other Voluntary Allotments including those for Professional Organizations, Quarters, Subsistence, Garage, Parking, and other purposes noted in VA Handbook 5007, Part VIII, Chapter 10, subject to systems limitations.

040504 Order of Precedence

  1. OPM in Memorandum PPM-2008-01 provides general categories for deductions in an order of precedence for use whenever an employee’s gross pay is not sufficient to permit all deductions.
  2. DCPS will deduct applicable retirement contributions before any other deduction consistent with the order of precedence.
  3. If a bankruptcy court order is issued containing deduction processing requirements, DFAS will follow its specified precedence for deductions.

0406 Authorities and References

0407 Rescissions

Volume XV, Chapter 4A, Payroll: Deductions, approved August 10, 2023.

0408  Policy Approval

This policy was approved by the VA Chief Financial Officers’ Council on November 16, 2023.

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