What You Need to Know About Payroll Tax Deferral Repayment

Last fall, we talked about the payroll tax deferral that affected most military members and many federal employees. The deferral equated to a four-month, 6.2% increase in pay. But the catch was that it was just a temporary boost and needed to be repaid in 2021. Well, the time to repay those taxes has arrived, and here is what you need to know before the first pay period of the year.

Repayment will be spread out over the entire year. For active-duty military members and federal employees, the 2020 deferred Social Security taxes will be collected from both mid-month and end-of-month pay in 24 installments starting in January and ending in December 2021. This is in addition to the “regular” 6.2% payroll tax withholding.

For reservists and guardsmen, the amount collected may not be the same every pay period. Defense Finance and Accounting Service (DFAS) will collect 2% of net available from each weekly, mid-month and end-of-month pay, and will continue until the deferred taxes have been repaid in full.

Your pay stub will show what you still owe. Beginning this month, your myPay Leave and Earnings Statement (LES) will reflect the monthly collection amount and contain a note in the remarks section that shows the remaining balance of deferred Social Security taxes.

If you retire or separate from the military in 2021, you’re still on the hook for repayment. If you retire or separate from the military or the federal government before paying back the full amount of taxes that are owed, the unpaid balance will be collected from your final pay.

And now for a bit of good news.

A portion of the payback may be offset by a pay raise. Congress approved a 3% pay raise for the military, so the pain of the repayment may be eased somewhat.

For more information, visit DFAS’s page on the subject.

Need help getting into the savings habit? Take the Military Saves Pledge today and receive tips, resources, and motivation that will help you reach your savings goals.

Tip of the Day

  • Written by Guest Blogger | May 14, 2014

    Pay more than the minimum due on your #credit card & pay off your bill sooner. More tips at http://ow.ly/wOaVh.

Saver Stories View all »

From Shopaholic to Saver

Written by Jackie Toops | January 13, 2021

Many of us spend too much money on things we don’t need, but we don’t always know why. It’s easy to get a quick fix from retail therapy, but before we know it, our hard-earned money is gone. Oftentimes, when we engage in a “shopaholic” lifestyle or sporadic shopping sprees, we still experience feelings of emptiness, but to make it worse, we now have debt, too.

Khanmany was a shopaholic who turned everything around. She is active duty Navy and shares, “I was spending too much on things I didn't need. I was going shopping for no reason and was trying to fill a void. I was running up every credit card I owned to include Victoria's Secret, Military Star, Navy Federal, TJ Maxx, JCPenney, Macy's, USAA, and was only paying the minimum payments.”

Read more...

When You Start Small, Saving is Easy

Written by Lila Quintiliani | August 12, 2019

When Attiyya first got married, she and her Marine husband had just graduated from college and were focused on paying off student loan debt. They had both attended private schools and had sizeable loans. Then three months after the wedding, the couple found out they were pregnant with their first child.

The first year of their marriage, says Attiyya, was a balancing act between paying down debt and saving for the future.

Read more...

Making Saving Automatic Leads to Personal Success

Written by Lila Quintiliani | May 27, 2020

Ryan’s savings journey started when he was an active duty airman. Frequent deployments and temporary duty assignments gave him the opportunity to save. By the time he transitioned out of active duty, he had built up a healthy rainy-day fund and had started to aggressively save for retirement.

Read more...