By now, many of you have heard about the Presidential Memorandum to defer Social Security tax withholdings for some employees. The Defense Finance and Accounting Service (DFAS) and the IRS have recently released guidance on how this change may affect your paycheck.
The Q&A below addresses the most common questions being asked. I’ll continue to update this article as new information and resources are made available.
Q: Will my paycheck be affected by the deferral?
A: If your monthly basic pay is less than $8,666.66, your Social Security withholdings will be deferred or given to you. This includes all Enlisted service members, Officers at grades O1-O4, Officers at the grade of O5 with less than 16 years of service, Officers at the grade of O6 with less than 14 years of service, and Warrant Officers at grades W1-W5 with less than 24 years of service. Check your LES or the military pay chart to confirm your monthly basic pay.
Q: Can I opt out of the deferral?
Q: How long will my Social Security taxes be deferred?
A: The deferral starts with your September mid-month pay and ends on 31 December 2020.
Q: How much more will be in my paycheck?
A: It depends on your basic pay. The 6.2% current withholding will stop and your paycheck will increase by that amount. For example, an E6 with 10 years of service has a monthly basic pay of $3,769.80 and a monthly Social Security tax of $233.73 ($3,769.80 x .062). An O3 with 4 years of service has a monthly basic pay of $5,847.30 and a monthly Social Security tax of $362.53 ($5,847.30 x .062). You can also check your August LES to see the amount withheld. Depending on your branch of service, this withholding is labeled “FICA-SOC SECURITY” or “Social Security”.
Q: Will this deferral affect my federal or state tax withholdings?
Q: Do I have to pay this money back? If yes, when?
A: Yes. The repayment window will be from 1 January to 30 April 2021. At that time, DFAS will withhold your repayment of deferred Social Security tax. On 1 January 2021, DFAS will also resume withholding your 6.2% Social Security tax as normal. This means your paychecks will be 12.4% lower during the repayment window. Based on the examples above, during the repayment window, the E6 will have a monthly Social Security tax of $467.46 and the O3 will have a monthly Social Security tax of $725.06. On 1 May 2021 the tax will return to 6.2% of basic pay.
Q: What’s the purpose of this deferral if I have to pay it back?
A: This deferral is essentially a government loan. Instead of paying into the Social Security program for the remainder of 2020, you can use those funds any way you would like. It’s important to remember, just like any other loan, you will have to pay it back.
The information provided here is specific to members of the military only. If you are not in the military, please contact your employer for more details.