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COVID-19 Relief: The Facts on Military Social Security Payroll Tax Deferral and Payback

From September’s mid-month paycheck through December 31, 2020, military members with a monthly rate of basic pay less than $8,666.66 will see a temporary increase in their take-home pay due to a quirky mandatory Social Security payroll tax deferral scheme.  The amounts deferred will be collected between January 1 and April 30, 2021 so, in effect, this is a temporary interest-free loan. This deferral also affects civilian employees.

Who does the deferral affect?

The deferral generally impacts most enlisted service members and officers in grades O1-O4 with less than 16 years of service and the grade of O6 with less than 14 years of service

Why is this happening?

To provide relief from the economic effects of COVID-19, on August 8. 2020 a Presidential Memorandum was issues to temporarily defer Social Security withholdings through the end of 2020.  On August 28. 2020, the IRS issued guidance.  Under the temporary relief, if a military member’s monthly basic pay is less than $8,666.66, the normal withholding of 6.2% of gross pay for Social Security will be paused until the end of 2020.  Military member cannot opt-out of this deferral. 

How will the deferral work?

This relief is called a deferral because the government will recoup the temporarily paused Social Security withholding in the first quarter of 2021.  Per the IRS guidance, the paused 6.2% withholdings for mid-September through December 31, 2020 paychecks will be collected between January 1 and April 30, 2010 – meaning that between January 1 and April 30. 2021, 12.4% of your gross monthly pay will be withheld for Social Security taxes.  The DOD has stated that additional information on the collection process will be provided in the future.

The amount of your usual Social Security tax withholding from each paycheck appears in your LES as “Social Security” for the Marine Corps or “FICA-SOC-SECURITY” for Army, Air Force, and Navy or “FICA TAXES” for most reserve or national guard Army, Air Force and Navy. 

The deferred Social Security withholding will not affect any other tax withholdings or other aspects of your federal and state income tax liability or military retirement pay.

What about civilians?

Under the same relief, civilian employers are permitted to defer withholding and payment of the employee’s 6.2% portion of Social Security taxes if the employee’s wages are less than $4,000 during a bi-weekly pay period.  Each pay period is considered separately.

More information is available on the IRS page, DFAS website, DOD website, and September 8, 2020 DOD Briefing Card.