Echoing advice from federal employee unions, the government’s largest payroll provider has said that federal employees affected by the suspension of Social Security taxes “should plan on repaying the deferred taxes beginning January 1.”
The Defense Finance and Accounting Service meanwhile added some, but not full, information on how that is to be done, at least at agencies for which it provides payroll services, including VA, Energy and HHS in addition to DoD itself.
Employees affected by the change—which temporarily is stopping the 6.2 percent Social Security, or OADI, tax through year’s end for pay periods in which the employees earn less than $4,000—must repay the amount by April 30 unless Congress waives that obligation. Such a waiver is considered to be very unlikely.
DFAS said that “under current IRS Guidance, 2020 deferred OASDI taxes will be collected over a 4-month period. The rate of pay collected each pay period during this 4–month period in 2021 will depend on the total amount of taxes deferred in 2020 and will be different for each individual.”
“In 2021, you will be responsible for repaying the total amount of OASDI taxes deferred during 2020. Collection of the deferred taxes will be in addition to regular tax withholdings from your 2021 wages, including OASDI tax for 2021, calculated at 6.2% of your wages,” it said.
“Individual situations will vary, but it is important to review the increase in your net pay so that you can plan for your pay to be reduced by roughly that amount in January through April of 2021, in addition to your normal 2021 tax withholdings. You can also consult with an employee assistance program financial counselor or seek assistance from a private financial advisor,” it said.
Increasing federal income tax withholding—which some employees have expressed interest in doing—however “will not affect or cover the Social Security tax deferment,” it said.
While DFAS is the largest of the four major payroll providers, its process will not necessarily be applied by the others—none of which have put out comparably detailed information.
It added: “If your pay rate increases in 2020, but your pay is still below the wage limits for the deferral, the amount of deferred taxes will increase along with the increase to your pay. For example, if an individual receives a promotion in November 2020, the amount of deferred tax would increase because the 6.2% Social Security tax would be calculated on higher wages for the remainder of 2020. The total amount of tax deferred from September to December will be collected in 2021. However, if the promotion occurs in February 2021 there would be no impact on the amount of 2020 deferred taxes being collected in 2021.”