Military Paychecks may be Impacted by Fiscal Cliff Agreement

Jan. 7^th, 2013

Military servicemembers net pay may increase, decrease or not change at all as a result of the fiscal cliff agreement.  The payroll tax hike that went into effect on Jan. 1^st, 2013 increased the Social Security (FICA) employee tax on the first $113,700 in wages from 4.2% to 6.2%.  This 2 percent tax hike is a result of Congress and President Obama letting the “Holiday” tax cuts that were in effect for 2011 and 2012 expire.

Fortunately for military servicemembers they still may not see a decrease in net pay due to additional factors that contributed to increased pay compensation.  These factors which go into effect at the same time as the 2 percent tax increase include:

• Military Pay Raise of 1.7%
• Promotions
• BAH (Basic Allowance for Housing) rate average increase of 3.8% *
• BAS (Basic Allow for Subsistence) rate increase of 1.09%
• Other military allowance increases

* The BAH increase of 3.8% is an average and specific areas increased, decreased or stayed the same.

Another factor that will help many servicemembers from seeing an adverse affect in net pay is that military allowances are not taxed including on FICA.

Military personnel should examine their first 2013 Leave and Earnings Statement (LES) carefully to see any changes in net pay.  The difference can be seen by examining the area titled “FICA” taxes and comparing against the “FICA” taxes section on a 2012 LES statement.  The first active-duty military pay date of 2013 is Tuesday, Jan. 15^th.

Unfortunately, for most DOD civilian employees, like many civilian employees, they will not be able to avoid seeing a 2% net pay decrease on their paychecks as the additional military factors do not apply and there is still a pay freeze in effect until March 27^th, 2013.

See 2025 military pay rates and charts here.