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Here’s What You Need to Know about the Deferred Social Security Taxes, by Mark Heinrich

mark heinrich
November 6, 2020

Defense Finance and Accounting Service, the largest payroll processor for the government, recently released additional guidance on tracking the Social Security taxes being suspended until the end of the year for federal employees.

The latest guidance only directly applies to agencies for which they (DFAS) handle their payroll taxes – in addition to HHS, VA, DOD, and several smaller entities – and the general principles apply elsewhere. However, the guideline doesn’t answer some basic questions raised by Congress members, unions, and employees.

The federal government-imposed change suspends the 6.2% Social Security tax, also known as the OASDI tax for federal employees who pay it. This excludes CSRS workers, as they’re paid less than $4,000 per period. The recent release included prior statements from DFAS and other sources. The federal employees affected may not opt-out of the suspension.

According to DFAS, they put the changes into effect in the pay period that ended Sept. 12, meaning that affected employees will soon see the pay distribution’s impact if they haven’t already.

DFAS is one of the four major providers and one of the most forthcoming in implementing these changes. Compliance by other providers is still unclear, although OMB released a memo that intends to make the changes effective this current pay period, ending Oct. 26.

According to DFAS, the impact of these changes can be seen if you compare the net pay on your most recent leave and earning statements to that of the prior period. To see the cumulative effect over time, compare the year-to-date OASDI amount in the section “benefits paid by the government for you” to that in the “deductions” section.

The government is still paying its part of the 6.2% Social Security (OASDI) employer contributions for each pay period. The difference between the two amounts will provide visibility to the Social Security deferred taxes for 2020.

The report also stressed that the “tax-deferred wages” item on the statement isn’t the deferred Social Security taxes; instead, it’s the amount of Thrift Savings Plan contributions used to reduce state-federal taxable income. Furthermore, the deferred or collected OASDI taxes will not affect your thrift contribution savings.

State and federal income taxes are also not affected by this deferral and will be calculated like before. DFAS says it will release further guidance on whether employees will be able to select repayment terms and the potential interest. The guidance will also contain penalties when repayments aren’t made in full, as at when due (Apr. 30), and more.