Revenue Ruling 2009-11 Addresses Military Differential Pay |
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The IRS has released Revenue Ruling 2009-11, clarifying the changes to the treatment of military differential pay made by the Heroes Earnings Assistance and Relief Tax Act of 2008.
Differential pay is defined as any payment made by an employer to an individual
during the period during which the individual is called to active duty in the
uniformed services for a period of more than 30 days, and represents part or all
of the wages the individual would have received from the employer if the
individual were performing service for the employer.
Prior to the Heroes Act, military differential pay was not treated as wages and
qualified plans were not required to treat differential pay as compensation for
purposes of the limitations on benefits and contributions. Employers previously
reported military differential payments in box 3 of Form 1099-MISC. However, the
Heroes Act redefines military differential pay as wages for all payments made
after December 31, 2008, and must be treated as wages for income tax withholding purposes..
The ruling states that:
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Differential wage payments made to an individual on active duty for more than 30 days are subject to income tax withholding, but not to social security and Medicare (FICA) or unemployment tax (FUTA).
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Employers may use either the aggregate or the optional method to calculate income tax withholding in these situations. For a discussion of these methods, see section 7, “Supplemental Wages”, in Circular E, Employer’s Tax Guide.
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The amounts of differential wages must be reported on Form W-2.
Revenue Ruling 2009-11 will appear in IRB 2009-18, dated May 4, 2009.
See also the article “Military Differential and Combat Zone Bonus Pay” in the January 2009 FSLG Newsletter.
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Page Last Reviewed or Updated: April 20, 2009