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Veterans’ Day has got you thinking about how your company can better support employees who are called up for military duty. You’d like to spearhead a new program that pays employees on military leave the difference between their military pay and their regular pay. What are the tax implications of such a program?
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Answer: |
According to the Social Security Administration, employers who continue to pay employees full salary, or the difference between their regular salary and military pay, must be aware that the employment relationship between the employees and the employer is considered terminated when the workers are called for active military service.
Under the circumstances, payments made by an employer to former employees while in military service with the U.S. Government or the state National Guard are not considered “wages” for services performed in “employment” for the companies. These payments, therefore, are not “wages” subject to federal income tax withholding, FICA or FUTA.
Note, however, that these payments still are includable to the former employee as income. Employers are required to issue a Form 1099-MISC for any amounts paid.
Source: SSA/IRS Reporter, Fall 2004. |
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