Federal Benefits Service

Mandatory Social Security Tax Deferral for Federal Employees

Federal employees will not have the choice to opt out of the new payroll withholding change regarding Social Security.  On August 8th, President Donald Trump signed an executive order giving employers the option to defer withholding Social Security taxes.

Under the policy, agencies will soon stop payroll withholding of the 6.2 percent Social Security payroll tax through December (excluding individuals that are under the CSRS system, who don’t pay that tax, and those who earn $4,000 or more during a pay period).

It is important to distinguish that this “deferral” does not equate to payroll “forgiveness”.  Federal employees, including Defense Department civilians, will have to pay that money in 2021.

The US Department of Defense released an example of what this will look like for employees, using an E-5 as a benchmark for analysis:

“For service members, that would be 6.2 percent of basic pay. An E-5 with eight years of service has a monthly basic pay rate of $3,306.30. The monthly Social Security tax equals $204.99. Through the end of the year, this adds up to $819.96.

Beginning Jan. 1, 2021, the deferred Social Security taxes will be collected through April 30, 2021. So, that E-5 with eight years of service who received a total of $819.96 from the tax deferral now has to pay it back early in 2021.”

A notice posted by The Defense Finance and Accounting Service stated that federal employees “are not eligible to opt-out of the deferral if their Social Security wages fall within the stated limits.” Multiple agencies also have released similar statements to their employees.

Many people have voiced the desire have the choice to opt out, noting the deferral as a loan they didn’t ask for and as something that will only complicate their tax situation.  If neglected or handled incorrectly, federal employees could potentially face tax penalties.  Federal unions have made that same argument, and have been urging the administration to allow employees to opt out for those reasons, noting that some private sector companies are giving their employees a say in the matter.  So far, there have not been indications or reason to believe the administration would give federal employees the same option.

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