In an August 8 memorandum, the Trump administration, in an attempt by the administration to stimulate the economy and ease the financial hardships of citizens caused by the coronavirus pandemic, announced the initiation of a Social Security Tax deferral from mid-September through December.
The payroll tax deferral will be effective for civilian federal employees at the pay period ending Sept. 12, the Defense Finance and Accounting Service (DFAS) said. It will take effect for all military personnel who earn less than $8,666.66 a month and for federal civilian employees who earn less than $4,000 per pay period. The 6.2 percent tax on gross wages goes into funding Social Security. So, military troops who are paid bi-monthly will see an increase in their pay that will hit the banks on September 15.
But the rose has its thorns.
There are two things wrong with this plan. Firstly, the tax is not permanently forgiven, (deferred): Beginning in January, troops will have to pay it all back over a four-month period. Secondly, and worse, if the taxes are permanently forgiven as some lawmakers are discussing, this will rob the Social Security system, on which millions of Americans already depend, from funds. The system has been bled dry from decades of Congress “borrowing” from it to pay for pork projects.
This deferral will happen automatically in cases wherein civilian employees and military members are not eligible to opt-out of the payroll tax deferral, DFAS said. Both civilians and troops were informed so a week ago.
“The Office of Management and Budget directed all executive branch agencies to implement the tax deferral,” DFAS posted in its FAQs for civilian employees and military members. “As such, no payroll providers, departments/agencies, or service members will be able to opt-in/opt-out of the deferral.”
This is a disaster waiting to happen for junior military families. If they spend the extra cash in their paychecks in the economy as envisioned, then they will find themselves woefully short of those funds in January, a time when most families are recovering financially from overspending during the holidays.
“If you separate or retire in 2020 before the Social Security tax can be collected in 2021, you are still responsible for the Social Security tax repayment,” DFAS added in its FAQs regarding the deferral. “As more information becomes available on the collection of any deferred Social Security taxes, it will be posted [in the FAQs].”
The Coast Guard reported that retiring troops will have the deferred taxes removed from their final paychecks.
Rep. Don Beyer (D-VA.) was scathing in his remarks about the deferral and how it will affect military families.
“Thanks to Donald Trump, military families will see their paychecks reduced in January,” Beyer said on Tuesday in a statement. “The president’s order will give the illusion of pay increases until after the election, and then require service members to pay the money back with double tax withholding.”
“This is a disgraceful way to treat those who serve and sacrifice to keep us safe, and Trump’s trickery is obviously designed to help his campaign,” Rep. Beyer added.
Do we expect junior enlisted and junior NCOs to put the money aside so that they can pay it back without putting their families at risk for shortfalls in January and beyond? Doubtful. Very few will do that and it will just make the commanders in units have a plethora of headaches come 2021.
Military leaders and senior NCOs are encouraging troops to set the extra money aside so that they won’t be caught short in paying it back in January. They are also reminding the troops that this isn’t tax forgiveness, but just a deferral and they’ll have to pay it back. But much of that will fall on deaf ears.
One factor that could somewhat ease the negative effect is the three percent pay raise that is supposed to take place. This applies to troops that are retiring between now and the end of 2020.
Nevertheless, the payroll tax deferral is one of those ideas that sounds great and logical on paper but is a ticking time bomb for military families, especially the junior enlisted ones that live paycheck to paycheck.