2013 Tax Changes

Defense Finance
and Accounting Service
Providing payment services of the U.S. Department of Defense

Alert: DFAS Customers affected by 2013 Tax Changes

INDIANAPOLIS (Jan. 4, 2013) – DFAS military and federal civilian payroll customers are affected by recent changes to the tax law, the 2013 National Defense Authorization Act, and other entitlement changes. Social Security withholding taxes will increase to the normal rate of 6.2 percent. For the past two years, during the “tax holiday,” the rate was 4.2 percent.  This affects military and civilian personnel.

Some of the other changes affecting military personnel include:

  • 1.7% basic pay increase effective in January.
  • Basic Allowance for Subsistence (BAS) increases 1.1%. 
  • Basic Allowance for Housing (BAH) increases on average 4.0%.  A member’s BAH depends on grade, location, and whether the member has any dependents.  Members can find out their BAH for 2013 by clicking on the BAH link at the Defense Travel Management Office website www.defensetravel.dod.mil/site/bahCalc.cfm).
The “fiscal cliff” agreement passed January 1, 2013 by Congress permanently extends income tax provisions enacted in 2001 and 2003 tax laws for income levels up to $400,000 for individuals and $450,000 for families, but allows income tax rates to rise on taxable income above those levels.

The dollar amount of the Social Security withholding increase varies depending on the individual’s pay grade.  Below are two examples for military members depicting the increase in FICA coupled with the 1.7 percent increase in basic pay.  (These calculations do not include other payroll changes, therefore, net pay for an individual member in 2013 could increase, remain the same, or decrease.)
Previous rates - Dec 2012
  Gross Basic Pay   FICA (4.2%)   Net Basic Pay
E6 over 10 years of service 3,243.30 - 136.21 = 3107.09
03 over 6 years of service 5,271.90 - 221.41 = 5050.49
New rates - Jan 2013 (includes +1.7% basic Pay raise and 6.2% FICA withholding)
E6 over 10 years of service 3,298.50 - 204.50 = 3094.00
03 over 6 years of service 5,361.60 - 332.41 = 5029.19

In the example above, an E-6 with more than 10 years of Service in 2012 earned a monthly Gross Basic Pay of $3,243.30 and had $136.21 withheld for FICA at the 4.2 percent rate.  In 2013, the member receives a 1.7 percent pay raise for a monthly Gross Basic Pay amount of $3,298.50; FICA withholding at 6.2 percent increases withholding to $204.50 resulting in a reduction of $13.09 in net pay.  Likewise, an 0-3 with more than six years of service would have a decrease in Net Basic Pay of $21.30.

For military members, Social Security withholding is located on their leave and earning statement (LES) in the blocks marked “FICA taxes.”  DoD civilian and other federal employees paid by DFAS will find changes on their LES under “OASDI” (Old Age, Survivors, and Disability Insurance) in the deductions area of the LES.

Military Reservists and National Guard members will be the first to see potential changes in their net pay as a result of the law.  Entitlement changes will be reflected in their January paychecks.

Active duty military personnel will see any net pay changes in their January mid-month paycheck and will be reflected on the January LES.

DOD civilians and other federal employees  serviced by DFAS  and have FICA withheld from that pay, will see FICA withholding changes reflected in paychecks based on the pay period ending December 29 for pay dates beginning in January 2013.

Please review your January pay statement to see how these legislative changes affect you. Page updated Jan. 7, 2013