DFAS extends tax deferment repayment period

Soldiers and Army Civilians can expect to see additional OASDI deductions this year as the money from the tax deferral ordered by the president in August is repaid. W-2 forms also will reflect only the amount of taxes collected in 2020. A corrected W-2C form will be issued when the tax deferral is repaid in full.

WASHINGTON – Soldiers and Army Civilians have been given extra time to repay the tax deferment ordered by the president in August.

The Defense Finance and Accounting Service plans to extend payroll collections through December 2021 instead of the original April 30 deadline. Despite that adjustment, DOD officials emphasized that government workers, including the military, should expect their paychecks to be smaller starting this month, and that could be a burden to families who live paycheck-to-paycheck.

(Editor’s note: Financial management assistance is available through the Army Community Service facility here – 804-734-6388. Those concerned with how they’re going to pay back the deferred taxes should seek guidance from trained personal budget experts, according to the DOD.)

A presidential memorandum signed in August temporarily paused a portion of required Social Security deductions – identified on leave and earning statements as OASDI and set at 6.2 percent of the taxpayer’s base pay. The now expired tax deferral was intended to provide financial relief to civilian employees who make less than $4,000 per pay period and service members with a monthly basic pay of less than $8,666.66, according to DFAS.

“We knew the announcement would require a two-phase approach,” said Larry Lock, chief of compensation and entitlements with the Army’s G-1 office. “The first focused on advising that taxes would be deferred (and informing the workforce that money would eventually need to be repaid). Now, we’re going into the second phase, which is focusing on the collection and advising members on how we will proceed.”

To recoup funds, service members and civilians will pay the deferred 2020 Social Security tax as well as the normal 6.2 percent withholdings, said Michelle O. Francois, acting chief of the G-1’s Civilian Personnel Benefits and Compensation Division.

Soldiers and civilians were unable to opt-out of the original deferral, and will be unable to opt-into any payment plan other than what is in motion, Lock said.

To account for the additional taxes, he urges members to pay attention to their next leave and earnings statement, which will include the amount collected in the remarks section and the remaining balance. A secondary option is to access the final 2020 leave and earning statement on myPay and multiply the amount of basic pay received from September through December by 6.2 percent. 

According to Lock, the DOD is counting on Soldiers to take the responsibility of looking at their LES and figuring out how this is going to impact them, particularly if it is going to result in not meeting financial obligations.

The 2020 W-2s that will be posted this month will only reflect the total FICA taxes collected, DFAS further advised. Once the back taxes are repaid, personnel should expect a W-2c, Corrected Wages and Tax Statement, which will include the collection of the owed amount. This will not change the deadlines established by the Internal Revenue Service for filing income tax returns this year.

Noting that the automated payback system isn’t “one-size-fits-all,” Lock said the amount owed could fluctuate for recently separated or retired personnel. All members are required to repay their deferred tax amount in full. In a retirement or separation situation, the government will reimburse the taxes to the IRS on the individual’s behalf. If the taxes are not subtracted from their last check, the member will receive a debt notice with instructions on repayment information from DFAS.

Under these circumstances, the collection will happen through a debt management process and a letter will be sent to the individual's address of record and posted through the myPay website. The letter will outline instructions for repayment to be made via Pay.gov.

According to Lock, individuals who entered military service during the deferred period will end up repaying less, depending on their entry date. The total amount will still be spread evenly through the next calendar year.

“If there are any future changes, we will have to take a look at it and respond accordingly,” Francois said.

Active-duty and retired Soldiers and Army Civilians should visit www.dfas.mil/taxes/Social-Security-Deferral for the latest information and an FAQ listing.