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WASHINGTON — With plans to put payroll taxes
on ice for the rest of the year, Army finance officials
warn Soldiers the tax breaks are temporary and will be
collected starting in January.
In order to provide relief during the COVID-19
pandemic, a presidential memorandum was issued last
month, followed by guidance from the Internal Revenue
Service a few weeks later, to temporarily defer Social
Security taxes.
Effective this month and through the end of
calendar 2020, the federal government will defer
the withholding of payroll tax in order to provide
relief during the COVID-19 pandemic. Soldiers will
be responsible to pay their deferred taxes between
January and April 30, said Larry Lock, chief of
Compensation and Entitlements for the Army’s
G-1 office.
The Federal Insurance Contributions Act, or FICA,
is the U.S. federal payroll tax and part of former
President Franklin D. Roosevelt’s New Deal
domestic program. It’s essentially a trust fund for
American workers, with every paycheck taking
6.2% in gross wages for Social Security.
FICA taxes go into a government trust fund,
which pays out to retired Soldiers and eligible
beneficiaries. Soldiers need to understand their money
goes back into the Social Security
program come next year, Lock said.
So what does this mean for the Soldiers?
According to the emergency declaration signed
by President Donald Trump last month, individuals
whose monthly basic pay is less than $8,666.66
will benefit from this deferral.
If the monthly rate of basic pay is at or above this
threshold, the Social Security tax withholding will
not be affected by the temporary deferral. This
threshold was established by the Department of
Treasury.
Soldiers with monthly wages under the threshold
are not eligible to opt-out of the deferral, which will
happen automatically.
This essentially impacts all enlisted Soldiers;
officers at the grade O-1 through O-4; grade O-5
with less than 16 years of service; grade O-6 with
less than 14 years of service; and all warrant
officers from W-1 through W-4.
If Soldiers separate or retire in 2020 before Social
Security taxes are collected in 2021, they will still
be responsible for the tax repayment, Lock said.
The best way to plan is two-fold, Lock said. First,
Soldiers should check their Leave and Earnings
Statement, or LES, in the deductions sections for FICA-
SOCIAL SECURITY taxes. Once there, they
can identify the amount deferred for the applicable pay
period, he said.
After that, Soldiers should adjust for their tax
liabilities during the period of January through
April 2021. The deferral and tax liability will be
administered by the Defense Finance and
Accounting Service.