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Order gives employees Social Security withholding tax deferral, not forgiveness

WASHINGTON (AFNS) -- President Donald J. Trump signed an executive order on Aug. 8 that allows employers to defer withholding Social Security taxes. 

However, it's a payroll "deferral," not payroll "forgiveness" — meaning it's a temporary change, and service members and Defense Department civilians have to pay that money in 2021.

Internal Revenue Service officials said the Presidential Memorandum defers the employee portion of Social Security taxes. The Social Security tax is set for employees by law at 6.2 percent.

For service members, that would be 6.2 percent of basic pay. An E-5 with eight years of service has a monthly basic pay rate of $3,306.30. The monthly Social Security tax equals $204.99. Through the end of the year, this adds up to $819.96.

Beginning Jan. 1, 2021, the deferred Social Security taxes will be collected through April 30, 2021. So, that E-5 with eight years of service who received a total of $819.96 from the tax deferral now has to pay it back early in 2021. 

This means, nearly all enlisted service members will have their Social Security taxes deferred. Generally, officers in grades O-1 through O-4 will have their taxes deferred.  Additionally, officers in the grade of O-5 with less than 16 years of service and O-6s with less than 14 years of service will have their Social Security taxes deferred.

All warrant officers will have their Social Security taxes deferred except those at a grade of W-5 with 24 or more years of service.

Due to differences in pay systems, application of the tax deferral process will be different for most members of the National Guard and Reserves in the Army, Air Force, or Navy than for active component members.  

For these members, if they are eligible for the tax deferral, their initial net pay will have the Social Security taxes withheld. Two to three business days later, a separate pay transaction will be processed to refund the Social Security taxes withheld from the initial pay. This will also result in these members receiving an additional Leave and Earnings Statement in MyPay with an entry labeled "FICA Refund" reflecting the refunded Social Security tax amount.  

For civilians, that would be 6.2 percent of base pay plus any premium hours earned. For example, for an employee earning $80,000 annually and a bi-weekly salary of $3,066.40, the Social Security tax deferred for that pay period would be $190.12. However, if the employee earned overtime or any other premium pays, bonuses, etc. in the amount of $934.60, an employee would not receive the Social Security tax deferral for that given pay period, as the total earnings would exceed $4,000 (3,066.40 + 934.60 = $4001.00).

The deferral only covers Social Security tax; it does not affect any other tax withholdings.

Social Security grew out of the Great Depression of the 1930s. The United States had no old-age retirement system, and there was no federal unemployment insurance safety net. 

In January 1935, President Franklin D. Roosevelt proposed creating the Social Security system with payroll taxes from employers and employees contributing equally to the program. It passed Congress, and Roosevelt signed the bill into law on Aug. 14, 1935. The Social Security Act also established unemployment insurance.

The Social Security tax is also called the Old Age, Survivors, and Disability Insurance tax. Workers pay the taxes to Social Security, which funds the program for retirees, survivors and individuals with approved disabilities. 

For more information, service members and civilian employees may view the Defense Finance and Accounting Service page here . A list of service members' Frequently Asked Questions can be found here, and a list of civilian employees' Frequently Asked Questions can be found here. As more information is determined, updates will be posted on the site. 

Service members seeking more information on financial readiness, visit www.finred.usalearning.gov or www.milspousemoneymission.org

Civilian employees with concerns regarding repayment of the deferred OASDI, please consult with an Employee Assistance Program financial counselor or a private financial advisor.