WASHINGTON — Under a presidential memorandum issued by the Trump administration, tens of thousands of service members and Defense Department civilians will get a tax break beginning this month as part of efforts to boost the economy during the COVID-19 pandemic.
But while these men and women will see larger paychecks for now, they will have to pay all the money back in 2021.
“This will be a huge problem to young military families,” retired Army Gen. Barry McCaffrey said. “They will by human nature spend the apparent pay RAISE and then get kicked in the chops when they get several months-worth of DOUBLE withholding.”
Effective in its September mid-month paychecks, the Defense Department will begin to temporarily defer the 6.2 percent Social Security tax withholding for all DOD service members who make less than $8,666.66 per month in basic pay, and all DOD civilians who make less than $4,000 per pay period (roughly $8,000 per month).
Tens of thousands of people will receive bigger paychecks for the last few months of the year, as the U.S. marches toward the November election.
Then, the government will begin to collect the tax again and simultaneously collect all the deferred tax by withholding it from paychecks from Jan. 1 to April 30, 2021, meaning these same individuals will receive smaller paychecks than before the tax deferral.
Pre-tax basic pay for enlisted service members begins at under $2,000 per month.
Retired Adm. James Stavridis, an NBC News analyst and former NATO commander, said: “This reminds me of ‘payday lending,’ in the sense that it will make cash flow management more difficult for younger enlisted in the force. They will have to not fall prey to the temptation to spend cash they really don’t have in the fall, because the tax man is coming later. Doesn’t make sense as national policy, and hard to see the benefit for our troops.”
The White House released the presidential memorandum on Aug. 8, but the Defense Finance and Accounting Service just posted guidance on implementing it over Labor Day weekend. The deferral is mandatory for all eligible military and DOD civilians.
All enlisted service members will be affected by this, no matter the rank or time in grade. All officers from second lieutenant to majors and Navy lieutenant commanders will also have their taxes withheld. Nearly all warrant officers and many midgrade officers will also be affected.
Chief Master Sgt. of the Air Force JoAnne Bass, the service’s senior enlisted member, warned Air Force leaders to make sure airmen and their families are aware of the deferred taxes “to prevent financial strain in the future.”
In a Facebook message Monday, Bass wrote, “Unfortunately, neither military members nor civilian employees are eligible to opt out of the deferral.”
“The extra money we will get over the next few months,” she wrote, “will be paid back next year.”
On Tuesday, a group of 20 senators —19 Democrats, two independents, and Republican Sen. Susan Collins of Maine — sent a letter to Treasury Secretary Steven Mnuchin and Office of Management and Budget Director Russell Vought urging them make the tax deferral optional.
“We urge you to let federal workers and uniformed service members choose whether to defer their payroll tax obligations under IRS Notice 2020-65, rather than forcing them to participate. Federal workers and service members should not be used as pawns for a payroll tax scheme that many private sector employers are unlikely to join and where key questions remain unanswered,” the senators wrote.
The presidential memorandum also orders the treasury secretary to “explore avenues, including legislation, to eliminate the obligation to pay taxes deferred.”
“A transparent stupid election year move,” said McCaffrey. “Trump needs Congress to authorize a change to the law. They won’t do it. Payroll taxes are a basis of social security.”