Most servicemembers and federal employees are about to get a boost to their take-home pay for the rest of 2020. But there’s a catch – starting in January, they have to give it all back.
Federal agencies, including DoD and the Department of the Treasury, will implement a tax deferral plan put forward Aug. 6 by President Donald Trump’s memorandum. The bottom line: All federal employees, including members of the eight uniformed services, who receive less than $8,666.66 in base pay in any given month will see an extra 6.2% in their paychecks from now through the end of December (because Social Security tax won’t be withheld). From January through April, that percentage will be recouped via payroll deduction – on top of their ordinary 6.2%.
While official efforts are underway to alert servicemembers of this change, “lacking are efforts to advise those affected individuals on any guidance or implementation instructions regarding this temporary payroll tax deferment, the rationale for its immediate and mandatory implementation … and the policies and instructions governing the required payback in the event legislation authorizing permanent waiver of repayment is not forthcoming,” MOAA wrote in a Sept. 14 letter to Defense Secretary Mark Esper and Treasury Secretary Steve Mnuchin. The DoD pays the military and U.S. Public Health Service, while the Treasury pays the Coast Guard and NOAA.
The letter expresses MOAA’s concerns that the speed of the implementation “may have precluded a thorough and full assessment of the potential impact of the directive on servicemembers and their families.”
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Potential problem areas include:
- An inability of servicemembers and federal civilians to opt out of the deduction, should they desire.
- A lack of information regarding any potential further deferment or forgiveness of repayment for servicemembers facing financial hardship, upcoming deployment, or other challenges.
- A lack of clarity regarding proposals for blanket forgiveness – which would require a change in law – that could lead to confusion among servicemembers.
The letter extends MOAA’s offer to work with DoD and Treasury to “develop policies and procedures that minimize the risk of serious adverse financial consequences” for those affected.
Tax Deferral Resources
Learn more about what’s happening to your paycheck at the following links. And keep up with the latest news from MOAA on any further changes.
- A Sept. 10 DoD news release outlining the tax deferment process.
- A breakdown of the deferment, fact sheet, and answers to frequently asked questions from the Defense Finance and Accounting Service.
- IRS guidance on the deferment.
- Information and guidance from the chief of Compensation and Entitlements for the Army’s G-1 office.
- Information and guidance from the Coast Guard.