According to a recent article from the Defense Finance and Accounting Service, a Presidential Memorandum to defer Social Security, Old Age, Survivors, and Disability Insurance, or OASDI, tax withholdings was issued Aug. 8, 2020. This applies to military personnel with a monthly rate of basic pay lower than $8,666.66 and civilian employees with wages, subject to OASDI, less than $4,000 per pay period. The tax deferment is designed to provide relief during the COVID-19 pandemic. However, there is more to this story.
Though there may be a little more in the next eight paychecks, there is also a point when those extra dollars will have to be paid back.
The collection plan is for a double portion of the OASDI tax to be collected at the beginning of the year. For example, if a single pay period’s tax is normally $250, then in the early months of 2021, the taxes collected from those pay periods will be $500 until the amount previously deferred is paid back.
The deferment and repayment will be automatic and no employee may opt out.
Fort Riley’s financial counselors have some advice for navigating this tax deferment and repayment plan that might put the employee a few dollars ahead when all is said and done.
Paul Depusoir, a personal financial manager with Army Community Service recommends saving that money.
“They need to put it in to a savings account – preferably a high yield savings account,” Depusoir sad. “You can get one on a small amount of money. There are a bunch out there that don’t have a minimum dollar amount.”
Depusoir explained that putting the tax money that isn’t collected into a high-yield savings account could earn about ten times the interest of a regular savings account. That interest may only be at .9 or .7 percent, but over a period of 8 months it can add up.
For example, he said, each month put the money in the account and from the beginning it will earn interest. When the repayment time comes, take out only the amount of a single pay statement’s withholding to meet expenses, less if you can. The remaining balance will continue to earn interest until depleted.
“The good thing – if through an act of congress, somehow they manage to forgive that debt, then that person already will have a savings account or an emergency fund,” Depusoir said. “But they can’t count on that … because it will be about $2 billion plus that the government needs.”
Depusoir said his team is available to navigate financial planning and uncertainties by calling ACS at 785-239-9435 and scheduling an appointment. They also have information on their website about financial services and Army Emergency Relief programs.
For more information on the tax deferral, visit https://www.dfas.mil/taxes/Social-Security-Deferral/