Payroll Tax Deferral

Military spouses, have you heard? To help provide relief during the COVID-19 pandemic, the Presidential Memorandum issued on August 8, 2020 temporarily defers Social Security — Old Age, Survivors, and Disability Insurance (OASDI) — tax withholdings for some Service members. This is known as the payroll tax deferral.

What Does This Mean for Your Family?

Beginning with September’s mid-month pay, withholding of a Service member’s 6.2% Social Security tax will be temporarily deferred if their monthly rate of basic pay is less than $8,666.66. If monthly rate of basic pay is at or above this threshold, a Service member’s Social Security tax withholding will not be affected by the deferral.

Visit the DFAS pay tables and reference the “Deductions” section of your Service member’s Leave and Earnings Statement (LES) to calculate how this deferral could impact your situation.

For example, under the payroll tax deferral, an E-4 with less than two years of service who makes monthly base pay of $2,262.60, pays about $140 in Social Security tax and would see that temporary increase in net take home pay beginning this month.

It’s important to note, under current IRS guidance, the collection of the deferred taxes will be taken from your Service member’s wages between Jan. 1 and April 30, 2021. So, the $140 in Social Security tax that was provided to the E-4 above, would then have $140 withheld from his or her January 2021 pay (plus the amount that will be normally withheld in Social Security tax).  Military families are advised to review their LESs every month to track all changes.

Additional Facts to Know

• For Active Duty Air Force, Army, Navy and Space Force members, the Social Security tax is labeled as “FICA-SOC SECURITY” on the LES and is generally calculated as 6.2% of basic pay.
• For Reserve or National Guard Air Force, Army and Navy members, the Social Security tax and Medicare tax are jointly labeled as “FICA TAXES” on the LES and are generally calculated at 6.2% and 1.45% of basic pay, respectively.
• The Marine Corps will have the deduction listed as “Social Security”.
• This change only applies to a Service member’s Social Security tax withholding and is effective through the end of the 2020 calendar year.
• Service members are not eligible to opt-out of the deferral if their basic pay falls within the stated wage limits. The deferral will happen automatically.
• In accordance with current IRS guidance, collection of the deferred taxes will be taken from your Service member’s wages between January 1, 2021 and April 30, 2021, in addition to the regular withholding of Social Security taxes.
• If Service members separate or retire before the Social Security tax can be fully collected in 2021, they are still responsible for the Social Security tax repayment.

Military Spouses, Take Note!

If you work for a civilian employer, be sure to check with your employer to see if they choose to participate in the social security tax deferral as well. If so, be sure to have a plan to track your increase in net take home pay in order to prepare for collection in 2021.

What Is the Bottom Line for Military Families?

While this temporary relief could be helpful during these uncertain times, it’s important to know that the deferred taxes will need to be repaid in the new year, so follow these four tips:

1. Create a plan for the temporary increase in your family’s income now.
2. Create a plan for the future tax collection in 2021.
3. Visit with a Personal Financial Manager or Counselor on your installation for assistance, or call Military OneSource at 1-800-342-9647.
4. Stay informed about this issue for your family finances.

For more information, including frequently asked questions and fact sheets, visit the following:

• Defense Financing & Accounting Service (DFAS) https://www.dfas.mil/taxes/Social-Security-Deferral/
• Internal Revenue Service (IRS) https://www.irs.gov/newsroom/guidance-issued-to-implement-presidential-memorandum-deferring-certain-employee-social-security-tax-withholding
• MilSpouse Money Mission https://www.milspousemoneymission.org/covid-19-your-personal-finances/

MilSpouse Money Mission^® is a Department of Defense resource that offers FREE personal financial education specifically geared toward spouses. There is a Money Ready guide for various stages of financial life, a MilLife Milestones section to help you through the big moments in your military journey, a blog, spouse videos, quizzes, calculators and more!

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