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.

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