FORT LEE, Va. – The good news: Most military members and civilians will see larger-than-usual paychecks until the end of the year as a result of a Social Security tax deferment.
The bad news: Those extra dollars will be recovered through incremental payroll deductions starting in January that will be in addition to regular withholdings, meaning take-home pay early next year will be less than usual.
Service leaders want to ensure government workers understand the implications of the payroll tax deferral and have a plan for repayment. While it’s true that tax relief could prove beneficial to those struggling financially as a result of the COVID-19 pandemic, it’s equally apparent that individuals who squander the money and fail to prepare for paying it back are likely to face serious economic hardships in the near future.
Those planning to separate or retire from government service before deferred taxes are fully repaid, for example, will be on the hook for whatever amount they still owe. Also, when collection begins with the first pay period in January, the deferred taxes – along with the regular deductions – will be coming out of salaries, doubling the amount subtracted from take-home pay.
The “bottom line,” as noted in a Sept 10 All-Army message from Sgt. Maj. of the Army Michael A. Grinston, is that individuals need to look at leave and earnings statements and have a plan. “Leaders need to sit down with their subordinates and discuss their plan for when the tax is recouped in 2021,” the SMA advised.
Most workers contribute 6.2 percent in gross wages out of every paycheck to Social Security. This is commonly referred to as OASDI or the Old Age, Survivors and Disability Insurance. The deferment only affects these OASDI withholdings.
Service members whose monthly basic pay is less than $8,666.66 will be subject to the deferral, starting with the September mid-month paycheck. If the monthly rate of basic pay is at or above this threshold, they will not be affected. In other words, this essentially impacts all enlisted personnel; officers at the grade O-1 through O-4; grade O-5 with less than 16 years of service; grade O-6 with less than 14 years of service; and all warrant officers from W-1 through W-4.
The main difference between civilian and military pay is in how the amount is calculated. Civilian wages subject to OASDI are gross wages minus Federal Employees Health Benefits, Dental, Vision and Health/Flexible Spending Accounts. If the result is less than $4,000 per pay period, the deferment will go into effect, starting with the pay period ending Sept. 12.
If premium pay increases applicable wages to $4,000 or more in a pay period, the OASDI tax will not be deferred. A good reference on the civilian LES is the Taxable Wages listing found under the Summary tab on myPay.
Some aspects of the tax deferment plan could change in weeks to come as a result of further action from the Department of the Treasury, Congress, the president or other governmental entities, noted 1st Lt. Zachary W. Smith, a client services attorney with Fort Lee’s Office of the Staff Judge Advocate Tax Assistance Center. The lack of clear-cut guidelines also prompted him to state that what he had to offer was opinion and does not reflect any official Army positions or should not be construed as specific legal or financial advice.
“My opinion is that everyone should make plans to repay the deferrals, to be safe (e.g., by just setting aside the additional money in their paychecks from September-December 2020),” he said. “To get advice, individuals should consult with an expert who knows the particular nature of their situation.”
Financial management assistance is available through the Army Community Service facility here (804-734-6388). Helpful articles also can be found at the www.MilitaryOneSource.mil website. Those concerned with how they’re going to pay back the deferred taxes should seek out input from trained personal budget experts, according to the Department of Defense.
In an article posted to Army.mil, Larry Lock, chief of Compensation and Entitlements for the Army G-1 office, recommended a two-prong immediate response to the news of the tax deferment. First, personnel should check their LES, focusing on the deduction sections for FICA-SOCIAL SECURITY taxes. Once there, they can identify the amount deferred for the applicable pay period. Then, they should adjust their budgets to allow for the debt payment from January-April 2021.
The Fort Lee Human Resources Directorate has created a SharePoint site that will serve as a forum for additional questions, consolidate those already received and provide quick access to useful links, according to Carrie DeSouza who heads up the department. The site requires a Common Access Card. The web address is: army.deps.mil/army/cmds/imcom_usag15/flg/dhr/SitePages/SS_Deferment.aspx.
Furthermore, there were so many people across the government who had questions about the tax deferment that DFAS created a special page with frequently asked questions and other resources, DeSouza said. The links are listed below and are available on Fort Lee’s SharePoint site.
- Social Security Deferral: www.dfas.mil/taxes/Social-Security-Deferral
- Civilian Employee Frequently Asked Questions: www.dfas.mil/taxes/Social-Security-Deferral/Civilian-Employee-FAQs
As more information and guidance becomes available on how (or if) the tax deferral and subsequent collections will affect 2020 and 2021 tax filing, the Traveller will publish a follow-up story and the information will be shared on the installation’s SharePoint site.