DATE: October 20, 2003
Waiver is not an appropriate remedy to relieve a former service member of liability for erroneous payments of federal income tax withholding when the member is no longer in a pay status.
The member separated from the Air Force in early September 2002. Although she did not continue to receive pay and allowances, federal taxes of $305.30 per month were paid to the Internal Revenue Service (IRS) on her behalf for October through December 2002. The Defense Finance and Accounting Service (DFAS) reports that it did not closeout the member's account until 2003, and by then federal income tax withholding as of year end 2002 had been programmatically transferred to the IRS as a credit on the member's withholding account for that year.
The member contends that she was unaware of the fact that income taxes were being paid on her behalf for those months or on what income base they were assessed. She argues that she was a victim of this (and other) DFAS accounting errors amounting to "incompetence and dereliction of duty that caused . . . undue stress and financial hardship" and that it would be against equity and good conscience to collect this debt from her because there is no indication of fraud, fault, misrepresentation or lack of good faith on her part.
Section 2774 of title 10, United States Code (10 U.S.C. § 2774),
provides authority for waiving claims for erroneous payments of pay or certain
allowances made to or on behalf of members or former members of the uniformed
services. The member stopped receiving pay and allowances in September 2002,
and the three individual payments of $305.30 (a total of $915.90) each for
withholding tax on the member's behalf were unrelated to the payment of any
additional pay and allowances, even erroneous ones. Accordingly, these three
payments are not within the scope of the waiver statute, and may not be considered
for waiver. Compare the Comptroller General's decision in B-244596,
July 22, 1991 (involving payment of survivor benefit premiums for the member
after the member waived his retired pay). Compare also the Comptroller
General's decision in B-246044 (February 11, 1992) where similar waiver relief
was unavailable to a civilian official receiving erroneous payments of health
premiums, in part, because he was in a non-pay status.
Additionally, as suggested by the DFAS administrative report, as a result
of its errors, the member received additional credit, to which she was not
entitled, against her total 2002 total tax liability. These amounts would
have been totally refunded to her by the IRS if she had overpaid withholding
for the year, or were available as a credit if she had a balance due to the
IRS. Compare DOHA Claims Case No. 00073101 (August 21, 2000),
aff'd on reconsideration by the Deputy General Counsel (Fiscal), Department
of Defense, December 21, 2002. As stated in the Settlement Certificate,
personal or family financial hardship is not a proper basis for granting
a waiver. See DOHA Claims Case No. 97071007 (July 21, 1997).
We affirm the Settlement Certificate.
Signed: Michael D. Hipple
Michael D. Hipple
Chairman, Claims Appeals Board
Signed: William S. Fields
William S. Fields
Member, Claims Appeals Board
Signed: Jean E. Smallin
Jean E. Smallin
Member, Claims Appeals Board
1. Erroneous overpayments of civilian pay and allowances are governed by 5 U.S.C. § 5584.