Most military service members are finishing up the Social Security tax repayment from the deferral that happened in the last part of 2020. This will be a change in your paycheck and you may get a corrected 2020 W-2.
What Were The Deferral and Repayment?
From September through December of 2020, Social Security taxes were not withheld from military pay for anyone who earned less than $104,000 per year. Those taxes were then collected throughout 2021. The amount of the taxes that were not withheld showed up on the Leave and Earnings Statement as a debt. Then the amount of the debt decreased each month as the “payment” was made.
The amount collected for repayment was approximately 2.5% of base pay each month. The exact amount varies by the individual because of changes in pay from 2020 to 2021, promotions, time-in-service increases, and other pay changes.
No More Social Security Tax Repayment
Most service members were on schedule to repay the deferred Social Security taxes in December 2021. This means that they won’t have that “debt” payment in the future. This will be reflected on the 14 January 2022 paycheck. That means that they will have approximately 2.5% more in their monthly pay, in addition to the 2.7% pay raise authorized in the 2022 National Defense Authorization Act, and any increase in BAH for 2022.
Corrected W-2 Tax Forms
Whenever the deferred taxes are paid in full, DFAS will issue a 2020 W-2C that reflects the amounts that were actually paid. This would be reflected as a change in the amount listed in Box 4 of the W-2. Most people do not need to do anything with this corrected W-2. The only taxpayers who will need to take any action, such as filing an amended federal tax return, are those who have more than one source of income covered by Social Security, and who have earned income in excess of $137,700. Per taxpayer, not per couple.
If any other block of the W-2 shows a change, you may need to file an amended tax return for 2020. If you’re not sure, get help from a tax professional. You can use the Military One Source tax program or the Volunteer Income Tax Assistance program on your installation.
Who Isn’t Finished Repaying Their Social Security Taxes?
Reservists may not have repaid their entire deferred amount during 2021 due to variations in pay due to training schedules. Active duty service members who had inactive pay status time also may not have repaid the entire deferred amount.
These service members will continue to repay the deferred taxes until the entire amount is repaid. At that time, a corrected W-2 will be issued.
For most people, no action is necessary even if you receive an amended 2020 W-2. You’ll see an additional increase in your tax-home pay in 2022, on top of your regular pay increase.
So glad to have this nonsense behind us!
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