What Soldiers, DOD civilians should know about tax deferral ending
On Dec. 31, the Social Security tax deferrals, active throughout the fall of 2020, ended. Throughout this year, certain Soldiers and federal employees should be prepared for the normal 6.2% Social Security tax withholdings being deducted, as well as the deferred 2020 Social Security tax collection.
For a bit of background, the Social Security Old Age, Survivors and Disability Insurance tax withholdings were deferred from midmonth September through December 2020, for military members whose monthly rate of basic pay is less than $8,666.66 and federal government employees who earn $4,000 or less in wages subject to OASDI. This action was taken in accordance to the presidential memorandum issued Aug. 8, 2020, the Internal Revenue Service Notice 2020-65 issued Aug. 28, 2020, and at the direction of the Office of Management and Budget and the Office of Personnel Management.
Per IRS guidelines, these deferred 2020 collections will be deducted evenly in 24 installments between January to December from Soldiers’ midmonth and end of month pay. Starting Sunday, Soldiers can see these reductions reflected on myPay in their leave and earnings statement. A note in the remarks of the statement will show the remaining balance of deferred Social Security taxes. For information on the IRS Tax Deferral Information, visit https://www.irs.gov/newsroom/guidance-issued-to-implement-presidential-memorandum-deferring-certain-employee-social-security-tax-withholding.
For those interested in calculating the amount set to be collected prior to their January LES becoming available, all a person has to do is multiple any basic pay received between September through December by 6.2%. For additional information, Defense Finance and Accounting Services provides in-depth information at https://www.dfas.mil/taxes/Social-Security-Deferral/.
In terms of the 2020 W-2 issued at the end of January (a person’s W2 should appear in his or her myPay account once made available), the W-2c (Correct Wages and Tax Statement) will show the collection of deferred Social Security tax for 2021. However, this does not change the deadlines for filing 2020 income tax returns. The IRS has provided specific instructions for employees receiving the W-2c due to the Social Security tax deferral. This information can be provided at https://www.irs.gov/forms-pubs/form-w-2-reporting-of-employee-social-security-tax-deferred-under-notice-2020-65.
Essentially, if a person only had one employer during 2020 and his or her Form W-2c, Corrected Wages and Tax Statement, for 2020 only shows a correction to box 4 to account for deferred 2020 Social Security and withheld Social Security for 2021 pursuant to Notice 2020-65, no further steps are required. However, if a person had two or more employers and the W-2c shows correction for box 4, he or she needs to use amount of Social Security tax withheld in order to determine whether he or she had an excess Social Security tax on wages (or compensation) paid in 2020. If the amount withheld exceeds the maximum amount ($4,000) of tax owed, or increases the already existing amount of Social Security tax, then a filing of the Form-1040X Amended U.S. Individual Income Tax Return is needed to claim a credit for the excess Social Security tax.
Those who separate or retire prior to the deferred Social Security tax being collected in full, are still responsible for the remainder of the repayments. The unpaid balance will be collected from a person’s final pay and he or she may receive a debt letter with instructions on repayment.
For more information or questions, contact the Joint Base Myer-Henderson Hall Legal Assistance Office at (703) 696-0763.