January 7, 2019

In the Matter of the Debt Collection Act Petition

DONALD D. SALZANO v. UNITED STATES POSTAL SERVICE

P.S. Docket No. DCA 17-228

APPEARANCE FOR PETITIONER:
Donald D. Salzano

APPEARANCE FOR RESPONDENT:
Roberta Clemmer
Labor Relations Specialist

FINAL DECISION UNDER THE DEBT COLLECTION ACT OF 1982

This decision addresses two debts the Postal Service seeks to collect from Donald Salzano under the Debt Collection Act.  The first debt involves a salary overpayment, while the second debt involves cash advances Mr. Salzano received for travel.  Although Mr. Salzano paid back those debts, the timing of the repayments resulted in the Postal Service’s inability to recoup taxes it had withheld and forwarded to federal and state taxing authorities on Mr. Salzano’s behalf.  The Postal Service now seeks to collect debts based on those tax withholdings.  As explained below, the Postal Service is entitled to collect both debts.

FINDINGS OF FACT

Taxes for Continuation of Pay

1. Mr. Salzano filed a claim for workers’ compensation on September 5, 2016.  While the Department of Labor was evaluating that claim, the Postal Service paid Mr. Salzano Continuation of Pay (COP).  The COP included compensation for Mr. Salzano’s regular salary as well as night differential and Sunday premium pay.  (Tr. 28–30).  The COP for night differential and Sunday premium pay totaled $934.45, made up of a $670.48 net payment and $263.97 in taxes withheld by the Postal Service (Tr. 18, 44–47; Resp. Exh. 6 at 33­–34).
2. On October 11, 2016, the Department of Labor denied Mr. Salzano’s claim for workers’ compensation (Resp. Exh. 7).  After his claim had been denied, Mr. Salzano agreed that he was not entitled to keep the COP (Tr. 75).  In that situation, Mr. Salzano had the option of taking sick leave, annual leave, or leave without pay for the days he received COP (Tr. 40).
3. Mr. Salzano opted to take annual leave, and later in October 2016, the Postal Service processed the necessary paperwork to convert the COP hours to annual leave hours.  The only effect of this adjustment was to reconcile the debt created for the regular work hours.  (Resp. Exh. 7 at 8­–12).
4. Because the Department of Labor had denied his claim, Mr. Salzano was not entitled to keep the night differential and Sunday premium pay he had received with the COP (Tr. 40–41, 75).   The October 2016 adjustment thus did not reconcile or repay any of the money Mr. Salzano had received for night differential and Sunday premium pay (Resp. Exh. 7 at 8­–12).
5. Accordingly, on November 30, 2016, the Postal Service issued an invoice for $670.48 to recoup those payments (Resp. Exh. 5 at 97; Tr. 42–43).  Mr. Salzano did not, however, pay the invoice before the end of 2016.  Therefore, in January 2017, the Postal Service generated an invoice for $264.00, representing the amount of taxes the Postal Service had paid on Mr. Salzano’s behalf. ¹  (Resp. Exh. 5 at 108; Tr. 44–45).
6. In April and May 2017, Mr. Salzano paid back the net amount of the debt ($670.48) through a series of payroll deductions (Resp. Exh. 6 at 45–48).
7. In August 2017, the Postal Service issued a Notice of Involuntary Administrative Salary Offsets asserting a $264.00 debt for the taxes it had withheld on Mr. Salzano’s behalf (Pet. Exh. 1).  Thereafter, Mr. Salzano filed a petition with the Judicial Officer Department challenging the assessed debt.

Taxes on cash advances for travel

1. Mr. Salzano went on five approved business trips in 2014 and 2015 (Resp. Exh. 5 at 6–20).  Mr. Salzano did not have a government-issued credit card to pay for these trips, so he received cash advances totaling $3,351 to help pay his expenses (Resp. Exh. 4).  The parties expected the cash advances would be repaid when, after he returned from each trip, Mr. Salzano filed his travel claim.  The Postal Service intended to deduct the amount of each cash advance from the amount it reimbursed Mr. Salzano after processing his travel claim.  (See Handbook F-15, Travel and Relocation, § 10-2.1.2, which provides that the amounts of an outstanding cash advance will be automatically deducted from the amount of the reimbursement).
2. For each of his trips, Mr. Salzano promptly filed a travel claim when he returned.  The Postal Service, however, refused to reimburse Mr. Salzano’s travel claim because it believed the claims included non-reimbursable items.  Lengthy discussions ensued between the parties, but they were not able to resolve their dispute, and the travel claims remained unreimbursed—even the undisputed portions of the travel claims.  (Resp. Exh. 5 at 6–20, 45–58; Tr. 95–97).
3. By the end of 2015, the travel claims (and thus the cash advances) remained unpaid and were still pending in the Postal Service’s travel system.  Because Mr. Salzano had not repaid the cash advances as of December 30, 2015, the Postal Service considered them taxable.  (Resp. Exh. 5 at 31, citing Handbook F-101, Field Accounting Procedures, § 22-1.3, which provides that if a cash advance is not repaid within 120 days after travel is complete, the IRS considers the cash advance as reportable compensation).  The Postal Service thus withheld $784.91 for taxes on the cash advances from Mr. Salzano’s final paycheck for 2015 (Resp. Exh. 5 at 34; Tr. 47).  At the same time, the Postal Service sent Mr. Salzano an invoice for that amount to recover the taxes it had withheld and on Mr. Salzano’s behalf (Resp. Exh. 5 at 31; Tr. 47, 50).
4. The total debt resulting from the cash advances and the taxes withheld totaled $4,135.91 as of early 2016 (Resp. Exh. 4).
5. These events eventually resulted in a Debt Collection Act petition before the Judicial Officer Department (DCA 16-193).  That petition focused on the Postal Service’s previous unwillingness to pay the undisputed portions of the travel claims.  After discussions between the parties, they eventually settled DCA 16-193.  As part of that settlement, in November 2016, the Postal Service issued Mr. Salzano a check for $3,884.65 (Resp. Exh. 5 at 59).  The Postal Service did not, however, actually give the check to Mr. Salzano.  Instead, it applied the entire amount to the outstanding debts.  The Postal Service applied $3,351 to the debts for the cash advances, completely satisfying that debt.  The Postal Service applied the remaining amount ($533.65) to reduce the tax-related debt from $784.91 to $251.26.  (Resp. Exh. 5 at 59–60; Tr. 98).
6. In August 2017, the Postal Service issued a Notice of Involuntary Administrative Salary Offsets asserting its right to collect that remaining balance of $251.26 (Pet. Exh. 2).  Thereafter, Mr. Salzano filed a petition with the Judicial Officer Department challenging the assessed debt.

DECISION

Taxes for Continuation of Pay
It is well settled that when an employee’s workers’ compensation claim is denied by the Department of Labor, the employee has to repay the COP associated with that claim.  Summers v. United States Postal Service, DCA Nos. 17-254, 17-255, 2018 WL 6000714 (October 22, 2018); Moss v. United States Postal Service, DCA 15-220, 2015 WL 13647644 (November 13, 2015).  The COP may be repaid in one of several ways.  The employee may elect to convert the COP hours to leave without pay and repay the cash value of the COP.  Alternatively, the employee may take sick or annual leave for the hours of COP.  Employee and Labor Relations Manual (ELM), § 543.41.
It is also well settled that an employee who fails to repay a salary overpayment by the end of a calendar year incurs an additional debt to the Postal Service.  Aaron Thorne, DCA 12-319, 2013 WL 12303256 (April 16, 2013).  When an agency makes a salary overpayment, it withholds taxes on the total salary payment (referred to as the “gross payment”) and then pays the employee the remainder (referred to as the “net payment”).  The Postal Service takes the money it has withheld for taxes and sends it to the respective federal and state authorities responsible for collecting taxes.  If the employee repays the net payment before the end of the year, the agency simply asks the taxing authorities to make a corresponding adjustment to the employee’s tax records, and the employee is cleared from any further liability for the overpayment.
If, however, an employee fails to repay a debt by the end of a calendar year, the agency is no longer able to recoup the taxes it forwarded to the taxing authorities.  Eudy v. United States Postal Service, DCA 16-225, 2017 WL 5516572 (August 9, 2017).  After the first of the year, the unrepaid overpayment is treated as income by the taxing authorities, and the taxes paid by the agency on behalf of the employee are credited as taxes paid by the employee.  At that point, it is simply too late for the agency to get the taxes back that were paid to the taxing authorities on behalf of the employee.  The employee, of course, was never entitled to either the net salary overpayment or the credit received on his behalf from the taxing authority.  The employee thus incurs a debt to the agency for both the net amount of the salary overpayment and the taxes forwarded to the taxing authorities on the employee’s behalf, equating to the gross overpayment.  Postal Bulletin 22480 (November 9, 2017).
In this case, there is no serious factual dispute.  Mr. Salzano received COP, but his workers’ compensation claim was denied.  He chose to repay the debt for the net amount of the COP by converting the COP to annual leave.  Although the Postal Service processed the paperwork to make that change in 2016, the actual repayment, which was made through salary offsets, did not happen until 2017.  Thus, even though Mr. Salzano eventually repaid the net salary overpayment, that repayment did not happen soon enough to extinguish his liability for the taxes the Postal Service had withheld on his behalf at the end of 2016.  Aaron Thorne, DCA 12-319.  Of course, Mr. Salzano is also entitled to the benefit of those taxes in the form of credits with the taxing authorities.
During the hearing, Mr. Salzano argued that he repaid the debt (for both the regular hours and the night differential and Sunday premium hours) in same year it accrued based on the October 2016 processing of his request to convert the COP to annual leave.  The processing of that change, however, only administratively reconciled the debt for the regular hours; it did not repay the debt for the night differential or Sunday premium hours (Finding 4).  The debt for those hours was not repaid until April and May 2017 (Finding 6).  Because the actual repayment for the debt did not happen until 2017, Mr. Salzano’s argument fails.
Taxes on Cash Advances for Travel
As already discussed, when the Postal Service makes a salary overpayment, an employee is responsible for the taxes withheld on that salary overpayment if the overpayment is not repaid by the end of the calendar year.  Similarly, when the Postal Service issues a cash advance to an employee, the employee is responsible for the taxes on the cash advance.  One difference, however, is that the debt does not come into existence at the end of a calendar year, but instead comes into existence 120 days after the travel is complete.  Handbook F-101, § 22-1.3; see also Handbook F-15, § 4-2.2.  Also, when the Postal Service makes a salary overpayment, it normally withholds taxes when it makes that payment.  The Postal Service does not, however, normally withhold taxes from a cash advance for travel when it issues that payment.  The Postal Service will make the withholding only after 120 days have passed since the travel was completed.
Here again, the facts are generally undisputed.  Mr. Salzano received cash advances before he went on five trips in 2014 and 2015.  When he returned from each trip, he promptly submitted his travel claims.  The Postal Service, however, refused to process his claims because it believed they included items that were not reimbursable.  Long discussions followed.  During those discussions, the cash advances remained outstanding, and once they had been outstanding for over 120 days, they were treated as reportable compensation.  In December 2015, the Postal Service thus withheld $784.91 from Mr. Salzano’s salary for those taxes and forwarded that amount to the respective tax authorities on his behalf.  The Postal Service considered that amount to be a debt it was entitled to collect under the Debt Collection Act.  It collected part of this debt in November 2016 when it eventually reimbursed Mr. Salzano’s travel claim.  The Postal Service now seeks to collect the remaining balance of $251.26. ²
On these facts, the Postal Service has made an initial showing that there was a $784.91 debt based on the travel advances that had been outstanding for more than 120 days (Finding 10).  Mr. Salzano raises several arguments in an effort to overcome that initial showing.  First, citing 41 C.F.R. §§ 301-52.9 and 301-52.17, he argues that the Postal Service was required to pay all the undisputed parts of his travel claims within 30 days.  According to Mr. Salzano, the Postal Service’s failure to comply with those provisions prohibits it from collecting the debt now in dispute.  This argument fails because those regulations do not apply to the Postal Service.  The opening section of 41 C.F.R. Part 301 provides that the travel regulations cited by Mr. Salzano only apply to “executive agencies” as defined by 5 U.S.C. § 105.  In turn, 5 U.S.C. § 104 specifically states that §105 does not include the Postal Service.  The provisions of 41 C.F.R. Part 301 thus do not help Mr. Salzano.
Next, Mr. Salzano points to two IRS publications (Publication 15 and Publication 463 ³) to support his position.  Publication 15 provides that money an employee receives for travel expenses under an “accountable plan” is exempt from income tax withholding and is exempt from social security and Medicare taxes (Pet. Exh. 7 at 38). ⁴  Money the employee receives from a non-accountable plan, however, is subject to income tax withholding and subject to social security and Medicare taxes (Id.).  Neither party discussed whether the cash advances from the Postal Service to Mr. Salzano were part of an accountable plan or a non-accountable plan.  I need not answer that question, however.  Publication 15 provides that a cash advance paid under an accountable plan, if not repaid within 120 days, is treated as if it had been paid under a non-accountable plan (Pet. Exh. 7 at 15).  Therefore, regardless of which plan applied to Mr. Salzano’s cash advances, because he did not repay them within 120 days of his return from travel, the cash advances were subject to the taxes now in dispute.
This conclusion is supported by the other IRS document cited by Mr. Salzano, Publication 463 (Pet. Exh. 8).  Publication 463 repeats much of the discussion about accountable plans, including the 120-day repayment provision from Publication 15.  Mr. Salzano focused on Publication 463’s definition of “reasonable time.”  He argues that he complied with these IRS provisions by filing his travel claims within a reasonable time (30 days, as defined by Publication 463).  He thus asserts that the cash advances were exempt from the taxes now in dispute.
This argument has some appeal, but ultimately fails.  Yes, Mr. Salzano did promptly file his travel claims, and the Postal Service could have reimbursed Mr. Salzano for the undisputed portions of his travel claim.  For whatever reason, however, it chose not to.  That decision, of course, resulted in the cash advances being outstanding for more than 120 days after Mr. Salzano returned from travel, triggering this dispute.  None of those facts, however, negates the fact that a debt was incurred or excuses repayment of the debt.  Despite Mr. Salzano’s obligation to repay the debt, I remind both parties that Mr. Salzano may be entitled to other relief as addressed in Postal Bulletin 22480.  As suggested there, Mr. Salzano may wish to seek the services of a qualified tax preparer with further questions.  Also, as appropriate, the Postal Service is expected to ensure that Mr. Salzano receives a corrected copy of any of his W-2 forms he may need to file amended tax returns.
Finally, Mr. Salzano argues that the Postal Service prematurely collected part of the debt when it applied some of the money it paid him in November 2016 to this debt.  Presumably, Mr. Salzano is relying on the parts of the Debt Collection Act that require an agency, before it begins to collect a debt, to notify an employee of (1) the nature and amount of the debt, (2) the agency’s intention to begin proceedings to collect the debt by taking deductions from the employee’s pay, and (3) the employee’s right to challenge the debt.  5 U.S.C. § 5514(a)(2).
These parts of the Debt Collection Act apply to offsets from an employee’s “current pay account.”  5 U.S.C. § 5514(a)(1).  Without deciding whether a reimbursement for a cash advance is a current pay account, I merely note that Mr. Salzano raised this issue before the hearing when he asked me to order the Postal Service to return the $533.65 it offset in November 2016.  This issue was eventually overtaken by the impending hearing, and I did not rule on Mr. Salzano’s request before the hearing.  The issue has now been mooted by this decision.  I also note that even if the offset had violated the Debt Collection Act, that action, standing alone, does not relieve an employee from repaying an otherwise valid debt.  Mr. Salzano is thus not entitled to substantive relief from the debt based on a premature salary offset.  Mehta v. Department of Veterans Affairs, VA 13-397, 2015 WL 13647660 (March 24, 2015).

ORDER

The Petition is denied.  The Postal Service may collect (1) $264.00 for the debt related to the taxes withheld for the COP and (2) $251.26 for the remaining balance of the debt related to the taxes withheld for the travel claims.

Alan R. Caramella
Administrative Judge