U.S. military service members and civilian employees will largely be subject to President Trump’s executive order for payroll tax deferral for the remainder of the year. As a result, the Defense Finance Accounting Service (DFAS) will temporarily stop withholding the 6.2% Social Security tax from many service members’ and DoD employees’ pay. Those taxes will then be recouped in the first quarter of 2021.
The intent behind this military tax deferral is to help families struggling economically amid the ongoing coronavirus pandemic.
“Effective for the September mid-month pay, DFAS will temporarily defer the withholding of your 6.2% Social Security tax if your monthly rate of basic pay is less than $8,666.66. If your monthly rate of basic pay is at or above this threshold, your social security tax withholding will not be affected by the temporary deferral.”
“Military members can use their August or prior LES as a good reference for their typical Social Security tax amount. The Social Security tax is labeled as ‘FICA-SOC SECURITY’ on the LES and is calculated as 6.2% of basic pay.”-Statement from the Defense Finance Accounting Service
How much extra money will you see in your paycheck?
The easiest way to see exactly how much your basic pay will change is to look at your most recent LES and locate the Social Security tax deduction. That deduction will end for the September 15 pay day and will remain stopped for the remainder of the year.
The Social Security deduction is 6.2% of your monthly basic pay, so you can also do the math using your pay grade and time in service. You can check your basic pay rate here.
- An E-3 with two years in service receives $2,171.10 per month in basic pay, with $134.61 withheld monthly for Social Security tax.
- An E-5 with four years in service receives $2,891.40 per month in basic pay, with $179.27 withheld monthly for Social Security tax.
- An O-1 with less than two years in service receives $3,787.50 per month in basic pay, with $234.83 withheld monthly for Social Security tax.
How will you pay back your military tax deferral?
While the Social Security tax deduction will not be withheld from most service member and civilian employee pay, everyone will still be required to pay those taxes back in the first quarter of 2021.
Thus far, DFAS has not released exact details on how these taxes will be collected, but it seems likely that the overall amount will be liquidated over payments dispersed between January 1 and April 1. In other words, every additional dollar you take home in 2020 will be automatically deducted from your paychecks throughout the first few months of 2021.
It’s important to note that this deduction will be in addition to your standard Social Security tax deduction for those payments in 2021.
What happens if you get out the military before you’re done paying back your military tax deferral?
Service members and civilian employees who intend to separate prior to April 1 will still be responsible for paying back the full amount they received through the military tax deferral.
Whatever remainder you owe upon separation will be automatically deducted from your final pay. This may offset any amount you expected to receive for selling back leave upon your separation.
If your final pay isn’t enough to cover the remainder of what you owe, you’ll still be on the hook for the repayment, but thus far, no guidance on exactly how it will be collected has been released.
Can you “opt out” of the military tax deferral?
Most service members fall under that basic pay guideline of $8,666.66 per month, with the exception of some senior enlisted and officer pay grades. Those who fall under that monthly basic pay amount will automatically see the change in their deductions for remainder of the year.
“Unfortunately, neither military members nor civilian employees are eligible to opt-out of the deferral,” said JoAnne Bass, Chief Master Sergeant for the U.S. Air Force. “The extra money we will get over the next few months will be paid back next year.”