The Department of Defense is taking steps to notify and educate service members and civilian employees of changes to their payroll tax withholding starting in September 2020.
In order to provide relief during the COVID-19 pandemic, a Presidential Memorandum was issued Aug. 8, 2020, followed by Internal Revenue Service guidance issued Aug. 28, 2020, to temporarily defer the withholding of Social Security taxes for certain individuals beginning Sept. 1 through Dec. 31, 2020.
For Service Members
Service members whose monthly rate of basic pay is less than $8,666.66 in any given month will have their 6.2 percent Old Age, Survivors, and Disability Insurance, or OASDI, tax -- commonly known as Social Security tax -- deferred until Dec. 31, 2020.
This means service members will see a temporary increase in their net take-home pay. However, this increase in net take-home pay is temporary, and under current IRS guidance, repayment of all deferred OASDI taxes will occur from Jan. 1, 2021 through April 30, 2021, in addition to Social Security taxes which are normally withheld from a service member’s monthly pay.
For example, a service member whose monthly basic pay is $3,306.30, could expect to see an increase of $204.99 in their monthly net take-home pay from September through December 2020. Under current IRS guidance, beginning in January 2021, and continuing through April 2021, the $204.99 deferred tax amount will be withheld from the service member’s pay, in addition to his or her 6.2 percent OASDI taxes that are normally withheld each month.
Due to differences in pay systems, application of the Social Security (OASDI) tax deferral process will be different for most members of the National Guard and Reserves in the Army, Air Force, or Navy, than for active component members.
For these individuals, if they are eligible for the Social Security tax deferral, their initial net pay will have the OASDI taxes withheld. Two to three business days later a separate pay transaction will be processed to refund the Social Security taxes that were withheld from the initial pay. This will also result in an additional Leave and Earnings Statement being provided members in MyPay with an entry labeled “FICA Refund” reflecting the refunded Social Security tax amount.
The Department is providing information to service members so that they know why their take-home pay will increase during the last four months of 2020 and so that they can plan ahead the withholding of the deferred taxes during the first four months of 2021.
Service members and families can contact Financial Readiness staff at their installation Military and Family Support Center, or Military OneSource at 1-800-342-9647, if they need assistance in reviewing their Leave and Earnings Statements (LES) or have questions in planning for changes to their net take-home pay.
For more information, service members may view the Defense Finance and Accounting Service page, https://www.dfas.mil/taxes/Social-Security-Deferral/ and a list of Frequently Asked Questions, here. As more information is determined, updates will be posted on the site. For more information on financial readiness, visit www.finred.usalearning.gov or www.milspousemoneymission.org.
For Civilian Employees
Effective for the pay period ending Sept. 12, 2020, DOD will temporarily defer withholding of employees’ 6.2 percent OASDI, commonly known as Social Security tax, if their wages, that are subject to OASDI, are less than $4,000 in any given pay period. Employees can use the “Taxable Wages” on the LES as a good reference for whether they will have OASDI tax-deferred.
For Non-Appropriated Fund, or NAF, civilian employees, the deferral is effective for the pay period ending Sept. 9, 2020, or Sept. 16, 2020, depending on their respective pay cycles.
Civilians whose wages, subject to OASDI, are less than $4,000 in any given pay period, will have their 6.2 percent OASDI tax-deferred until Dec. 31, 2020. These civilian employees will see a temporary increase in their net take-home pay during the 2020 pay periods that their OASDI tax is deferred.
However, this increase in net take-home pay is temporary, and under current IRS guidance, withholding of all deferred OASDI taxes will occur from Jan. 1, 2021 through April 30, 2021, in addition to the 6.2 percent OASDI taxes that are normally withheld each pay period the civilian earns qualified wages.
For more information, civilian employees may view the Defense Finance and Accounting Service page, https://www.dfas.mil/taxes/Social-Security-Deferral/ and a list of Frequently Asked Questions at http://www.dfas.mil/taxes/Social-Security-Deferral/Civilian-Employee-FAQs/.
As more information is determined, updates will be posted on the site. For civilian employees with concerns regarding withholding of the deferred OASDI tax, please consult with an Employee Assistance Program financial counselor or a private financial advisor.
For more information on financial readiness, visit http://www.finred.usalearning.gov.
Visit your installation Military and Family Readiness Center to speak with a Personal Financial Manager or Counselor, or contact Military OneSource at https://www.militaryonesource.mil.