DOD employees could owe IRS thousands of dollars in taxes and interest after PCS moves

https://www.stripes.com/news/dod-employees-could-owe-irs-thousands-of-dollars-in-taxes-and-interest-after-pcs-moves-1.572442

DOD employees could owe IRS thousands of dollars in taxes and interest after PCS moves

By AARON KNOWLES | STARS AND STRIPES
Published: March 13, 2019

WIESBADEN, Germany — Defense Department civilians who made permanent-change-of-station moves within the past two years soon will receive debt notices that also will include unanticipated interest charges and potential state tax penalties because of a 2017 tax law change, military officials in Europe said.

The Defense Finance and Accounting Service office is now calculating amounts owed by affected employees with a plan to mail debt letters in the coming fall, Army officials said. Once the letters are received, employees will have 45 days to pay the entire amounts owed or to work with DFAS to determine payment plans, U.S. Army Europe officials said at a Monday town hall meeting in Wiesbaden.

Many civilians said they were unsure about how much they owed and expressed frustration with an overall lack of clarity about the tax change, which has created widespread confusions at military finance offices.

“The information isn’t being put out there and if it is, people aren’t getting it and don’t know,” said Frances Salas, a DOD civilian with the Red Cross. “It’s like, ‘Here’s a bill, now figure it out.’ People say that we shouldn’t be upset because ‘we get paid enough,’ but not all positions are paid the same.”

Amounts owed in federal taxes can vary from $1,000 to more $11,000, according to the Army, and those numbers could go up. Recently, DFAS announced that state taxes have yet to be factored in. The tax amounts at the state level still were to be determined, it added.

The confusion stems from the Tax Cuts and Jobs Act of 2017, which made most PCS entitlements taxable and reported as taxable income to the IRS when it was implemented in January 2018. DFAS, however, didn’t implement a system change to collect tax withholding properly as required by the new law for direct reimbursements until 10 months after it took effect.

Allowances received for household-goods shipments are now taxable, but long-term storage and privately owned vehicle shipments to and from assignments outside the continental U.S. are not taxable income, DOD has said. Other moving-expense allowances that are now taxable under the 2017 law include airfare, passport and visa fees, en-route lodging and per-diem expenses.

The General Services Administration didn’t put out its first bulletin informing employees of the implemented tax changes until May 2018, clarifying that agencies could reimburse “substantially all” moving-related expenses for civilians who go from one federal job to another through Withholding Tax Allowance and Relocation Income Tax Allowance.

However, new hires and those retiring from federal jobs are not eligible.

Employees who took jobs prior to being notified of the tax implications learned that they will still be liable for the debt regardless of when they were informed.
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The Office of the Secretary of Defense has a proposal that would exclude household goods, the most expensive portion of the move, from being taxed. U.S. Africa Command also has requested exemptions for retirees and new employees. However, there have been no decisions on those matters.
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