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AAFMAA Blog

Facts About the Social Security Payroll Tax Deferral

2020-09-14

If you are a servicemember or a civilian DoD employee earning $8,666.66 or less per month, you will see a temporary 6.2% pay increase in your mid-September pay through your December 2020 pay. This applies to all enlisted service members, warrant officers through CW-4, and officers through O-4 (Major/Lieutenant Commander).

This temporary increase is a deferral of your Social Security payroll tax and you will have to repay the same amount over a four-month period from January 1 to April 30, 2021.

This tax deferral is designed to ease economic burdens caused by the COVID-19 pandemic and was announced by the President in an August 8 memorandum and implemented in subsequent IRS guidance.

The deferral will happen automatically and you cannot opt out of it.

When the payroll tax resumes in January, an additional amount will be taken out of your first quarter paychecks to repay the deferred payments.

Example: If you receive an additional $500 in your October pay, your January pay may be as much as $1,000 less than October because the $500 deduction for payroll tax will resume and an additional $500 will be deducted to repay the deferred payroll tax.

Save It Now and Pay It Later

What should you do? For most, it is probably best to save the extra payment so that you will have a cushion once the deferred payroll tax resumes in January 2021.

You should also stay informed — Congress could pass a law to forgive the deferred payroll taxes. If that happens, you would not have extra money taken out of your paycheck in 2021 (although normal payroll taxes would likely resume).

At AAFMAA, we’re dedicated to helping you navigate the often complex world of military benefits. Reach out and let us know how we can help at memberbenefits@aafmaa.com or 888-976-3712.