That Payroll Tax Deferral Is Not Free Cash. Save the Money!
The payroll tax deferral Executive Order you’ve heard about may sound like a big win (more cash now!), but it’s not that simple. What does it mean for your military family?
Employers can now defer a portion of payroll tax withholdings for their employees who make less than $4,000 bi-weekly from September 1 — December 31, 2020 — which is supposed to provide temporary financial relief to working families during the pandemic.
And since Defense Finance and Accounting Service (DFAS) takes care of all of those payroll issues, you may not think twice about the extra money in your paycheck. But the extra money you’ll see in your paycheck? It all comes due in 2021.
While employers have been given the opportunity to opt out of the program, the federal government is expected to participate. That means that every service member — from active duty, Guard, and Reserves — will have their payroll taxes deferred.
Service members earning less than $8,666.66 in monthly basic pay will have their Social Security tax, labeled “FICA-SOC SECURITY” on your Leave and Earnings Statement (LES), deferred. Again — not waved, forgiven, or reimbursed — just deferred.
All military pay will be affected, and there’s no opportunity to opt out of the program.
While a payroll tax deferral means more take-home pay in the short-term, the long-term repercussions are still unclear.
While the President’s Order can defer the tax, he alone cannot forgive it. President Trump’s order directs the Secretary of Treasury to pursue legislative action to forgive the deferred taxes — a long Congressional process not likely to happen in remaining months of 2020.
If Congress does not act to forgive the deferred taxes, you will have to pay them back, and on the government’s timeline, meaning the deferred taxes will be taken directly out of service members’ paychecks — in addition to the usual amount of payroll taxes.
Here are a couple things you can do to prepare:
- Make sure you know exactly how much money is deducted every month from your paycheck for social security. (remember that “FICA-SOC SECURITY” line)
- In paychecks received from mid-September through the end of the year, check to see exactly how much *wasn’t* taken out — and put that money aside if you can.
The more you save now, the less it will hurt when it’s time to pay the deferred money back.
By: Jennifer Davis, Government Relations Deputy Director