In an August 8, 2020 memorandum, President Trump announced a Social Security payroll tax deferral designed to help ease economic burdens caused by the COVID-19 pandemic that will impact the paychecks of over one million servicemembers — and your spouse may be one of them.

If your servicemember spouse earns $8,666.66 or less per month, you will see a temporary 6.2% pay increase in their mid-September through December 2020 pay. The deferral applies to all enlisted servicemembers, warrant officers through CW-4, and officers through O-4 (Major/Lieutenant Commander). The deferral happens automatically, and your spouse cannot opt out of it.

What’s the Catch?

This temporary increase may look like “free money,” but don’t be fooled: it will all have to be repaid when the payroll tax resumes in January 2021.

At that time, the additional pay granted during the referral period will be taken out of your spouse’s paychecks over a four-month period from January 1 to April 31, 2021. Repayment will be taken out on top of regularly scheduled taxes over those four-months.

Let’s Look at an Example

If your spouse receives an additional $500 in their October 2020 pay, their January 2021 pay may be as much as $1,000 less than they receive in October. This is because the $500 deduction for payroll tax will resume in January 2021 and an additional $500 will be deducted from that paycheck to repay the deferred payroll tax.

Plan for Success

How should you treat your spouse’s pay increase for the rest of 2020? For most, it’s probably best to save the extra payment so you have a cushion once the deferred payroll tax resumes in January 2021.

You should also stay informed — Congress could pass a law to forgive the deferred payroll taxes. If that happens, you would not have extra money taken out of your paycheck in 2021 (although normal payroll taxes would likely resume).

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