What You Should Know About the Payroll Tax Deferment

What You Should Know About the Payroll Tax Deferment
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Most servicemembers and federal civilians will see a significant bump in their pay – more than 6% – over the rest of 2020. And by the end of April 2021, they’ll need to pay all of it back.


The deferment of Social Security tax, designed to provide funds to those in financial difficulty caused by the pandemic, is mandatory across the federal workforce for those who qualify. For the military, that means all active duty enlisted personnel and officers in grades O-1 through O-4, as well as some in higher grades who don’t meet certain time-in-service benchmarks.


That’s hundreds of dollars per month for most earners – and the rapid implementation of this mandatory change may have “precluded a thorough and full assessment of the potential impact of the directive on servicemembers and their families,” MOAA wrote to Defense Secretary Mark Esper and Treasury Secretary Steve Mnuchin in a Sept. 14 letter.


Mnuchin also fielded questions on the deferment during a Sept. 24 hearing by the Senate Committee on Banking, Housing, and Urban Affairs. Per a Federal Times report, Mnuchin said the desire of some to opt out of the program was “reasonable,” and he pledged to follow up with the Office of Management and Budget (OMB).


The same report highlights a letter by an Army captain sent to Rep. Don Beyer (D-Va.) that echoes MOAA’s concerns on DoD messaging.


“Awareness of this … has not been effectively broadcast to any level of the military,” wrote the captain, as Beyer read the letter during a Sept. 24 House Ways and Means Committee hearing on Social Security. “These include the young soldiers, sailors, airmen, Marines, and Coast Guardsmen who are still learning financial responsibility. Many of these young men and women are fresh out of high school and earning the first paychecks of their lives.”


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For those young servicemembers, and for the men and women who lead them, there are some resources available from the Defense Finance and Accounting Service (DFAS) and other outlets. Find links here (under “Tax Deferral Resources”) for full details, but here are some basics to keep in mind:

  • All things equal. You’ll repay the same amount that was withheld regardless of any promotions or other changes to your paycheck. The tax rate of 6.2% won’t change, either – if you move up in rank in November, for instance, you’ll simply pay 6.2% of the new, larger, paycheck.

  • No special arrangements. You won’t be able to set up your own plan to pay back the deferred taxes – they’ll be taken out of your pay the same way they were added in. And even if you’re leaving service via retirement or separation, you’ll still owe the money.

  • No wider effects. Per DFAS, the deferment won’t affect your state or local taxes, it won’t change the amount you’ve earmarked for Thrift Savings Plan (TSP) contributions, and it won’t affect those receiving military retired pay.

  • Addressing the need. Servicemembers facing financial difficulties have multiple resources available beyond funds received via the deferment, including branch-specific relief agencies. MilitaryOne Source offers a starting point for your financial questions, as well as military-specific tax guidance and other programs. MilSpouse Money Mission also has a series of helpful links.


While MOAA continues its efforts to work alongside DoD in spreading detailed guidance on the payroll tax deferment, MOAA members can continue to rely on our experts and our member-exclusive publications for financial guidance specific to the needs of servicemembers, retirees, and military families. Learn more at MOAA’s financial resources page.


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About the Author

Kevin Lilley
Kevin Lilley

Lilley serves as MOAA's digital content manager. His duties include producing, editing, and managing content for a variety of platforms, with a concentration on The MOAA Newsletter and MOAA.org. Follow him on Twitter: @KRLilley