Defense officials should delay collecting deferred payroll taxes from military members until October, wrote Sen. Joni Ernst, R-Iowa, in a Thursday letter to acting Defense Secretary Chris Miller.
Service members and their families “may be about to face further financial strains” because of the collection of these deferred taxes, which starts in January, she wrote, noting that the pandemic has already presented many challenges for military families across the country.
Ernst urged Miller to delay the collection of the taxes until October, “so that military troops do not see their pay cut at this time, and so that Congress may consider legislative options to address this issue.”
In August, President Donald Trump signed an executive order requiring the temporary deferral of Social Security payroll taxes for military members and federal civilian employees, from September through December. While that has meant extra money in troops’ paychecks for four months, they must now pay those taxes back, also over a four-month period, starting in January, per guidance from the Internal Revenue Service.
It’s not clear whether the Defense Department would have the authority to override that IRS requirement.
The move was designed to put more money into the pockets of employees, at least temporarily, to ease the economic pain caused by the pandemic. The payroll tax is 6.2 percent of basic pay. Troops will be paying that tax back, in addition to the resumption of the regular payroll taxes. In essence, the January paycheck will be about 12.4 percent less than the December paycheck.
Military members and federal civilians didn’t have the ability to opt out of the deferral. Legislative proposals to give them the ability to opt out failed.
Ernst also urged defense officials to notify service members of how much of their military pay will be collected by the Defense Finance and Accounting Service in paying back the taxes, and to “ensure that all the chain of command DFAS are providing accurate and individual information for service members and their families.”
The amount varies. For example, an E5 with eight years of service was receiving an extra $204.99 a month with the tax deferral. Unless that E5 was saving the extra money, the forced payback could be a hit to the income come January. The E5 will resume paying the payroll taxes, while paying back the deferred taxes — a difference of about $410 a month compared to the December paycheck.
It’s mitigated to some degree by the potential 3 percent pay raise.