With plans to put Social Security taxes on hold for the rest of the year, Army finance officials warn Soldiers and civilians employees the tax breaks are temporary and will be collected starting in January.
In order to provide relief during the COVID-19 pandemic, a presidential memorandum was issued last month, followed by guidance from the Internal Revenue Service a few weeks later, to temporarily defer Social Security taxes.
Effective this month for Soldiers and effective pay period ending Sept. 12 for civilians, and through the end of calendar year 2020, the federal government will defer the withholding of payroll tax in order to provide relief during the COVID-19 pandemic. Soldiers and civilians will be responsible to pay their deferred taxes between January and April 30, according to the office of Compensation and Entitlements for the Army’s G-1.
The Federal Insurance Contributions Act, or FICA, is the U.S. federal payroll tax and part of former President Franklin D. Roosevelt’s New Deal domestic program. It’s essentially a trust fund for American workers, with every paycheck taking 6.2% in gross wages for Social Security.
FICA taxes go into a government trust fund, which pays out to retired Soldiers, civilians and eligible beneficiaries. Soldiers and civilians need to understand their money goes back into the Social Security program come next year, said Larry Lock, chief of Compensation and Entitlements.
According to the emergency declaration signed by President Donald Trump last month, individuals whose monthly basic pay is less than $8,666.66 will benefit from this deferral.
If the monthly rate of basic pay is at or above this threshold, the Social Security tax withholding will not be affected by the temporary deferral. This threshold was established by the Department of Treasury.
Soldiers and civilians with monthly wages under the threshold are not eligible to opt-out of the deferral, which will happen automatically.
This essentially impacts all enlisted Soldiers; 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; all warrant officers from W-1 through W-4; and civilian employees up to GS-13, step six.
If Soldiers or civilians separate or retire in 2020 before Social Security taxes are collected in 2021, they will still be responsible for the tax repayment, Lock said.
The best way to plan is two-fold, Lock said. First, Soldiers should check their Leave and Earnings Statement, or LES, in the deductions sections for FICA-SOCIAL SECURITY taxes. Once there, they can identify the amount deferred for the applicable pay period, he said.
After that, Soldiers should adjust for their tax liabilities during the period of January through April 2021. The deferral and tax liability will be administered by the Defense Finance and Accounting Service.
As more information becomes available, it will be posted on: https://www.dfas.mil/taxes/Social-Security-Deferral/