What the payroll tax deferral means for your wallet — and what you’ll pay back in 2021

By the end of the week, many federal employees will see a small bump in their next paychecks, the first signs of the president’s payroll tax deferral.

For active-duty military members, the president’s payroll tax deferral is already here, as mid-month paychecks arrived Tuesday for most.

Employees whose gross, biweekly wages are $3,999.99 or less are subject to the president’s payroll tax deferral.

Employees and servicemembers who meet this guideline will automatically have their Social Security taxes — 6.2% of their income — deferred from their upcoming paychecks. There is no option to opt-out of the president’s payroll tax deferral, nor is there an opportunity to opt in.

Federal employees and military members will be expected to pay deferred taxes back starting next January and through April, though neither the administration nor individual payroll providers have described in detail exactly how that will work.

Based on the messages that agencies and payroll providers have sent to their employees, which Federal News Network has reviewed, the expectation is that employees will pay deferred taxes back in installments from January through April 2021.

Previous IRS guidance mentioned employees may face interest and penalties if they fail to pay deferred taxes back by April, but there are few other details.

Calculate your total deferred payroll taxes

To help you estimate how much you’ll temporarily save over the course of the next eight paychecks — and how much you’ll have to pay back in 2021 — Federal News Network has created a simple calculator for your planning purposes.


 
Choose Salary Period:


This calculator is intended to give you an estimate of the Social Security taxes that will be deferred for each of the next eight upcoming paychecks, including the check due between Sept. 18 and Sept. 22, depending on the timing of direct deposit.

The calculator will also estimate the total amount of deferred Social Security taxes for those eight pay periods, from September through the end of December.

To use the calculator, enter your basic (taxable) income. You can choose to enter to your annual, monthly or biweekly salary.

For example, let’s say your annual salary is $80,000 a year. Click “calculate tax deferral.”

In this case, your biweekly wages are $3,076.93 (or $80,000 divided by 26 pay periods in the year). Under the president’s new policy, $190.77 ($3,076.93 multiplied by 6.2%) would be deferred from one of those upcoming paychecks.

If nothing changed about your salary, grade or rank between now and the end of the year, you would receive a total of $1,526.16 in deferred Social Security taxes over the course of the president’s payroll tax deferral policy, or eight pay periods.

Again, these are estimates — designed to help you plan your finances for the rest of the calendar year and give you a better sense of what you’ll have to pay back starting next January.

For the most accurate results, enter in your most recent monthly or biweekly wages when using the calculator. Using monthly or biweekly wages will give you the most accurate representation of your taxable wages at the current point in time.

Because your Social Security taxes will be deferred on a paycheck-by-paycheck basis, the total may change on a biweekly basis. You may, for example, work overtime or accrue hazardous duty or combat pay for one pay period this fall but not another.

Therefore, the amount of deferred taxes may differ from one paycheck to another. Depending on your circumstances, working overtime or accruing hazardous duty pay may make you ineligible for payroll tax deferral during one or several pay periods but not others.

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A promotion between now and the end of the year will also change your deferred taxes — or, depending on your new salary, make you ineligible for the payroll tax deferral altogether at any point between now and the end of the year.

In general, federal employees who make $104,000 a year or less will be impacted by the president’s payroll tax deferral policy.

Though federal employees’ annual salaries vary depending on their locality pay area, the payroll tax deferral seems to apply to a majority of the civilian workforce. In the Baltimore-Washington, D.C. locality pay area, most GS-12s and below fall under the $104,000 threshold.

In the rest of the United States, the $104,000 salary threshold falls at GS-13, step 5 and below.

Based on December 2019 salary data from the Office of Personnel Management, approximately 1.3 million civilian federal employees are impacted by the president’s payroll tax deferral policy.

A little more than 1.3 million active-duty military members are also subject to the payroll tax deferral, based on an analysis of Defense Department personnel and salary data from July.