Your Pay May Be Going Up This Month – But There’s a Catch

Later this month, the United States government will be implementing a payroll tax deferral for about 1.3 million federal employees. The White House order specifically targets a 6.2% tax that employers deduct from wages to help fund Social Security. The details have not been completely fleshed out, but if you are a federal employee, including a military service member, here’s what you need to know about this deferral:

  1. Workers will see a boost in their pay – but then they have to pay it back. The 6.2% pay boost will start in mid-September and last until December 31, 2020. But then employees will have to pay it back, possibly by having twice the normal amount of taxes withheld through the first four months of 2021.
  2. You don’t have a choice about participating. While private sector companies are not widely implementing this plan, for federal employees and service members there seems to be no way to opt-out of this deferral, which will affect all those who make less than $4,000 biweekly or less than $104,000 annually.
  3. Those who can’t pay the taxes back on time may owe interest and penalties. If federal employees and service members cannot pay back all of the taxes by May 2021, they may owe interest and penalties.

This deferral is NOT a bonus, and should not be treated as such. The repayment period will be during a time frame that is typically stressful for most American families: the months when post-holiday bills come due and income tax refunds are not yet available.

Military families should pay close attention to their pay over the next few months. If possible, they should set aside the extra funds they are receiving due to the deferral in a separate savings account, so that they are able to repay these taxes in the new year.

For more information about these pay changes, visit this Defense Finance and Accounting Service (DFAS) webpage.

Need inspiration when it comes to saving? Take the Military Saves Pledge and then visit militarysaves.org and follow us on social media for tips, resources, and motivation.

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