Here's How Troops Will Repay Suspended Payroll Taxes in 2021

A U.S. Army soldier holds out her pocket change.
A U.S. Army soldier holds out her pocket change at Hanscom Air Force Base on April 2, 2018. (Massachusetts National Guard/Spc. Samuel Keenan)

Most military members will spend the next year repaying payroll taxes that were not withheld from their paychecks over the last four months of 2020, due to a temporary exemption put in place by President Donald Trump.

That change was made through an executive order that suspended the collection of Social Security payroll taxes from September through December. That meant most troops received a slightly larger paycheck during that time. But the executive order didn’t eliminate the tax. Instead, it delayed it temporarily, with repayment set for 2021. A new law approved by Congress this month and signed by Trump Dec. 27 aims to lessen the pain by spreading repayment of those four months of taxes over the 12 months of 2021.

What are payroll taxes?

Payroll taxes are the taxes that fund Social Security and Medicare. Together, they are often called FICA taxes, or Federal Insurance Contributions Act taxes, which is the name of the law that created them. The Social Security portion of the taxes is sometimes also called OASDI, which stands for Old Age, Survivors, and Disability Insurance. You see these on your Leave and Earnings Statement (LES) in the deductions section. Most employees, including military members, pay into Social Security and Medicare through taxes that are withheld directly from their paychecks. The total amount of the tax is 15.3% of taxable income, with employers paying half of that. That makes employees’ portion 6.2% for Social Security, and 1.45% for Medicare, with a cap of $137,700 in 2020.

The payroll tax suspension put in place by the executive order only applied to the Social Security portion, so troops’ paychecks were 6.2% larger than usual for September through December.

How payroll tax suspension repayment works

Repayment of these taxes begins in January. Troops will see the change in their mid-month January paychecks. For those who opt to get paid monthly, the change will be reflected at the end of month.

Under the terms of the bill signed into law Dec. 27, those suspended taxes will be repaid over the entirety of 2021. But that might feel a little like a double whammy, because the repayment will layer with the restart of the usual Social Security taxes that have not been paid since September. For example, an E-5 with over six years of service had a base pay of $2,095 in 2020. From September through December, their monthly pay was $136 higher, because those Social Security taxes were not withheld, for a total of $544 over four months. That means $45 per month will be withheld from that service member’s paychecks as repayment over the course of 2021. Beginning in January, that regular 6.2% Social Security tax that was missing from September through December will also start again. If nothing else changed, January’s pay would be $136 less than December’s, thanks to that restart. But since repayment will also start, that service member’s January monthly pay would be $181 less than it was in December, assuming nothing else about their paycheck changed.

Other pay changes coming in 2021

But in addition to the tax repayment and restart, plenty of other paycheck amounts are changing in January. Troops who receive a mid-month pay deposit will only get the basic information on the Net Advice of Pay received with that mid-month deposit. They will have to wait until the full Leave and Earning Statement (LES) comes out around January 25th to review any changes.

Related: How to Read a Military LES

While we don’t yet know how they’re going to code the repayment of the 2020 Social Security taxes on the LES, we can predict what the changes will look like. Here’s what troops should see reflected in their end-of-month LES for January:

  • A 3% base pay increase for all military members.
  • The increased BAS rates for 2021
  • BAH increases, depending on location.
  • Return of full Social Security taxes for 2021 (6.2% of base pay).
  • Repayment of unpaid Social Security taxes for 2020 (2.7% of base pay per month)
  • Any other situation-specific changes, such as pomortions, time-in-service increases, TSP contribution changes and allotment changes.

Depending on the variables, all these changes could mean that troops’ paychecks are smaller than they were for the last few months of 2020, or that the increase in pays and allowances feels less than it actually is. Either way, understanding what is happening is key to figuring out how to work with it. Experts recommend troops review their LES monthly, even when major changes aren’t expected.

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