A New Plan for Social Security Payroll Tax Payback

A New Plan for Social Security Payroll Tax Payback
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From September through December 2020, the payroll tax deduction for Social Security was suspended, but only for active duty servicemembers and Guard and Reserve members who had a monthly basic pay below $8,667.


This suspension was part of a bill to put more take-home pay in your pocket to help cope with the pandemic. The original law stated the suspended 2020 Social Security taxes would be paid back from January to April 2021. During this time, you were to have both regular Social Security payroll taxes and last year’s suspended taxes deducted from your pay.


Well, the plan has changed.


A bill just passed to extend the payback of last year’s suspended Social Security payroll taxes to December 2021.


[RELATED: MOAA's Military State Report Card and Tax Guide]


Sure, you still have to pay back the suspended taxes. But with the extended payback period, the bite per paycheck will be much less.


Instead of paying it back in eight pay periods, now active-duty servicemembers will pay it back in 24 pay periods.


Guard and Reserve members will pay back the suspended taxes at 2% of pay, whether from weekly, mid-month, or end-of-month pay until the 2020 suspended taxes are recouped.


Social Security tax is 6.2% of your basic pay. A member who had the tax suspended at the highest rate of pay had approximately $2,150 in suspended Social Security taxes last year. The $2,150 over eight pay periods would have been $269 per pay period. However, divided over 24 pay periods, it will be about $90 per pay period.


For more information, click here to see the Defense Finance and Accounting Service (DFAS) fact sheet of the original tax deferral order (PDF), and click here to see the updated tax payback order (PDF).


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About the Author

Lt. Col. Shane Ostrom, USAF (Ret), CFP®
Lt. Col. Shane Ostrom, USAF (Ret), CFP®

Ostrom is MOAA's former Program Director, Financial & Benefits Education/Counseling