President Bush signed the Jobs and Growth Tax Relief Reconciliation Act of 2003 on May 28, 2003. Among its provisions, the Act provides for decreases in Federal tax rate withholding brackets. Employers were told that the new tax withholding rates were not to be retroactively applied back to January 1, but must be implemented in payroll systems no later than July 1, 2003. DFAS was able to implement the rates effective June 1, 2003 for all of the civilian employees we pay. We actually installed the new rates in our payroll system on June 13 and applied them to payroll tax computations for the June 1-14 pay period. However, whenever a retroactive action is received into the payroll system, our retroactive process looks at disbursement dates to determine which tax rates to use. The payroll for the May 18-31 pay period was disbursed after June 1. Therefore, if a person goes through retroactive payroll processing which effects the May 18-31 pay period, his or her taxes will be recomputed for that pay period using the new tax rates and a refund made in the next pay check.

For further clarity, here are four hypothetical examples of situations that could occur in the future:

1. During the pay period July 13-26, 2003, a person submits a retroactive time and attendance change for the pay period May 18-31, 2003. The taxes will be recomputed for the May 18-31 pay period and a refund made in the July 13-26 pay check.

2. During the pay period July 27-Aug 9, 2003, a person submits a retroactive time and attendance change for the pay period May 4 -17 (or any other earlier pay period). The taxes will be recomputed and refunded for the May 18-31 pay period only, as that is the only pay period which was disbursed after June 1, but before the new rates were installed in the payroll system on June 13.

3. If a personnel action, such as a within-grade increase, is submitted on Aug 24 with a retroactive effective date of May 18, the taxes will be recomputed for the May 18-31 pay period and refunded.

4. If a personnel action, such as a within-grade increase, is submitted with a retroactive effective date of May 4th (or any other earlier effective date), the taxes will be recomputed for the May 18-31 pay period only, as that is the only pay period which was disbursed after June 1, but before the new rates were installed in the payroll system on June 13.

We hope this explains the situation.