BLUF: Your federal employee paycheck is likely going to be bigger for the months of September through December 2020, due to a payroll tax DEFERRAL. We recently received an email informing us of that on 08 Aug. 2020; the President signed a Memorandum pertaining to a payroll tax deferral.

What are Payroll Taxes?

Payroll taxes consist of income taxes, unemployment taxes, and deductions for Federal Insurance Contributions Act taxes (FICA). Within FICA are Social Security, Old Age, Survivors, and Disability Insurance (OASDI) and Medicare, which is Hospital Insurance taxes. FICA is being deferred.

The current tax rate for Social Security is 6.2 percent for the employer and 6.2 percent for the employee. Only the employee portion (6.2 percent) is being deferred.

Which Payroll Tax is Deferred?

Specifically, the temporary change will defer the 6.2 percent in OASDI taxes withheld for all eligible employees. This tax deferral does not impact those with gross wages of $4,000 or more per biweekly pay period (or the equivalent amount with respect to other pay periods). When implemented, the 6.2 percent OASDI tax deferral will be effective from 1 Sept. 2020 until 31 Dec. 2020. There is no provision to opt-out.

Who?

The deferrals will apply to all federal employees (and some other employees, depending on the employer) making less than $104,000 per year, or $4,000 gross per biweekly pay period.

Simply stated, this short-term loan will need to be repaid in full, and not an increase in take - home pay. In the short term, you may see an increase in take-home pay, but unless Congress passes COVID-19 legislation to forgive the payroll taxes that are due, you will likely be expected to pay that money back from January through April in 2021, for tax year 2020. You can imagine that this could be a hefty and unplanned bill.

You will be getting calls from salespeople soon with “Payroll Taxes Saving Strategies and Scams." Take heed and extreme caution.

Easy METHODS to Arrive at Temporary Spendable Increase

  1. Refer to your Last Pay Statement or LES

  2. Just Simply use a 6.2 Rule of Thumb

  3. Use an Online Salary Calculator Designed to Compute Payroll Taxes

Here are a couple of simple effective ideas that will help.

  • Set aside the additional amount each pay period in a separate saving account at your bank or credit union, and then use that to pay back your taxes when they come due. A bonus is that you can keep the interest earned on the money! If you do not have the money readily available, by some estimates, you will have to double your regular payroll tax rate during the first four months of 2021 to cover the amount. Additionally, it is possible that if you do not pay it back in full, you will then have to pay interest and penalties.
  • An easier route is to use a rule of thumb…Just save the 6.2 percent OASDI tax each paycheck or check your latest August paycheck to see how much Social Security (OASDI) tax is usually deducted from your earnings, to know how much to set aside.

Need Help?

Vast amounts of information informational resources are being released on this subject from both government agencies and the private sectors. If you are drowning in information and starving for knowledge, contact your installation's Command Financial Specialists (CFS) or Personal Financial Management staff (PFM).

Tax Note:

Please note that Personal Financial Management Program does not prepare taxes, they provide product free and commercial free education to help Marines make informed financial decisions.

The Memorandum on Payroll Taxes Deferral for September 2020 to December 31st, 2020 is simply a referral of the Marine’s or Fed Employee portion of social security. Following is a link for more detailed information on the DFAS website

Review the Three Easy Ways to Arrive at Temporary Spendable Increase to assist you make an informed decision about what to do with your temporary spendable increase in income dues to the Payroll Taxes Deferral for September 2020 to December 31st, 2020.

Reference

Memorandum on Payroll Tax Deferrals: https://www.whitehouse.gov/presidential-actions/memorandum-deferring-payroll-tax-obligations-light-ongoing-covid-19-disaster/

Defense Finance and Accounting Service (DFAS): https://www.dfas.mil/taxes/Social-Security-Deferral/