FAQ for Payroll Tax Holiday USAA Community.jpg

Here in Community it’s our goal to address member questions on popular topics. Below are some top questions and answers on the topic of the Payroll Tax Deferral. Have a question? Be sure to leave yours in the comment section.  


Q: At my income level, do I qualify for the payroll tax deferral?

A: The Defense Finance and Accounting Service (DFAS)  announced it will temporarily defer payroll tax withholding for servicemembers with monthly basic pay of less than $8,666.66 . For context, an O-5 with over 14 years of service has basic pay of $8,486. Civilians with earnings less than $4,000 in any biweekly pay period will also see their payroll tax withholding temporarily deferred. Those with variable earnings could be eligible for it one pay period and not the next.


Q: Can I opt out of this program?

A: DFAS has announced that military members and civilian DOD employees are not eligible to opt-out of the deferral and all eligible employees will have their 6.2% Social Security tax deferred between September 1, 2020 and December 31, 2020. If you are employed by an agency other than the Department of Defense, you should contact your human resources department for further information.


Q: How will I repay?

A: Participating employers like the federal government and the Department of Defense are still working out details on the collection process. DFAS stated that collection of deferred taxes will be taken from an individual’s wages between January 1 and April 30, 2021, but that additional information on the collection process will be provided in the future. Per the IRS implementation guidance, employers must withhold and pay the deferred taxes between January 1 and April 30, 2021. Taxes not repaid prior to May 1, 2021 would be subject to interest and penalties. That makes it likely that the repayment would take place during the first four months of 2021 via a “double payroll tax” of 12.4%.


Q: Is there a chance the deferred payroll taxes will be forgiven outright so they don’t need to be repaid?

A: Forgiveness of the deferred payroll tax obligation would require congressional action. As it is currently unclear whether such legislation will be considered or approved, the best bet for affected individuals is to plan for the taxes to be deferred to 2021, not forgiven.


Q: How should I prepare for double payroll tax withholding from January 1 to April 30, 2021?

A: Since uncertainty exists, the safe move would be to have a plan for a smaller paycheck – roughly 6.2% smaller than normal (less any annual pay raise) and 12.4% smaller than what you were receiving during the deferral period. For most folks, a safe plan would be to set aside the extra income in a savings account and have it available to cover any shortfalls at the beginning of next year.  


Q: What if I leave or lose my job before the end of this year and don’t have an employer during the repayment period?

A: You should check with your current employer about their plans for collecting the deferred Social Security tax. The IRS guidance specifies that employers can make arrangements to collect the money from employees, which could mean deducting the money from your final paycheck or some similar arrangement. DFAS noted that if a military member or civilian employee separates or retires in 2020, they are still responsible for repayment; additional information on the collection process will be provided in the future.


Q: How much will my paycheck increase?

A: The tax typically shows as “FICA” on paystubs or as “FICA-SOC SECURITY” or “Social Security” on your Leave and Earnings Statement (LES) and is set by law at 6.2%. Check a previous month’s paystub or LES to see what type of boost you will see.


Q: Where should I go if I have additional questions?

A: Websites at the IRS, DFAS, Coast Guard’s Pay and Personnel Center or your employer should have the latest information applicable to you.


Do you have any additional questions? Please ask in the comments.


Related Post:

What the Payroll Tax Deferral Means for Your Budget

Payroll Tax Holiday – Points to Consider