Military members and federal civilians will see a significantly smaller bite out of their paychecks under a new law that stretches their repayment of deferred payroll taxes to 12 months instead of four.
The provision is included in the spending bill that was signed into law by President Donald Trump on Dec. 27. The law includes pandemic relief and federal spending.
Under guidance from the Internal Revenue Service, defense officials were set to start collecting deferred Social Security payroll taxes from troops’ paychecks over a four-month period spanning January through April — paying back the extra money that troops received in their paychecks from September through December.
Now that payback will be stretched over 12 months, to Dec. 31, 2021, so the decrease in the paycheck will be one-third of what was previously scheduled.
In August, Trump signed an executive order requiring the temporary deferral of Social Security payroll taxes for military members and federal civilian employees, from September through December. While that has meant extra money in troops’ paychecks for four months, they must now pay back those taxes.
The move was designed to put more money into the pockets of employees, at least temporarily, to ease the economic pain caused by the pandemic. The payroll tax is 6.2 percent of basic pay. Troops will be paying that tax back, in addition to the resumption of the regular payroll taxes.
The amount varies. For example, an active-duty E5 with eight years of service was receiving an extra $205 a month for four months with the tax deferral. With this last-minute change, instead of paying back $205 a month over four months, the E5 will be paying back about $68 a month over 12 months.
The tax deferral policy affected all enlisted members, virtually all warrant officers and many officers, to include everyone up through the grade of O-4. Officers in the grade of O-5 with less than 16 years of service, and those in the grade of O-6 with less than 14 years of service were affected. Those who earned more than $8,666.66 a month didn’t have their Social Security taxes deferred — they continued to pay the payroll taxes.
Rep. Don Beyer, D-Va., an outspoken critic of the tax deferral policy, hailed the inclusion of the provision to stretch out the payments, saying it will alleviate the burden on military families and federal workers. “Our payroll tax fix will help lessen the damage of Donald Trump’s payroll tax scam for military families and civil servants by minimizing the drop they see in individual paychecks,” said Beyer, who helped secure the fix.
He was an earlier support of legislation to block the tax deferral policy, which was mandatory for military and federal civilians. They didn’t have the option to opt out of the deferral.
The provision is in Section 274 of the Consolidated Appropriations Act, 2021.
Karen has covered military families, quality of life and consumer issues for Military Times for more than 30 years, and is co-author of a chapter on media coverage of military families in the book "A Battle Plan for Supporting Military Families." She previously worked for newspapers in Guam, Norfolk, Jacksonville, Fla., and Athens, Ga.