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Date: August 14, 2009

Bulletin Number: P-919

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Subject

Taxation of Retroactive Raise Payments for Employees Receiving  Military Stipend

 

Purpose

To describe changes that are required to apply the proper taxation for employees who are receiving a retroactive military stipend increase but are no longer receiving a military stipend.

 

Affected Employees

Employees receiving a retroactive pay increase for military stipend.


Effective Date(s)

August 19, 2009.

 

Background

Recent changes in tax regulations require that military stipend payments be exempt from Social Security and Medicare taxes.  Payroll Bulletin No. 914 (Change in Taxation of Military Stipend) explained the regulation and described how the FICA status would be updated for employees beginning or ending military stipend beginning in Pay Periods 9L and 10L.

When an employee receives both military stipend pay and regular earnings in the same paycheck, different tax treatment for these two types of earnings is required.  This may occur when an employee is on a Paid Leave of Absence and receives a military stipend, and a retroactive raise is paid in the employee’s regular position.  Or, this may occur when a retroactive increase in military stipend is paid, and the employee has returned to his/her regular position.  In these situations, OSC must ensure that each earnings is handled individually and that all military stipend earnings are exempt from Social Security and Medicare taxes, while all regular earnings remain subject to these taxes.

 

OSC Actions

Whenever a mass retroactive salary increase is made, OSC will identify employees receiving that payment who have a FICA status on Job Data that is inconsistent with the retroactive payment and will make the necessary deductions.

For example, employees who are no longer receiving a military stipend and have a status of SUBJECT but are entitled to a retroactive salary increase from their time while earning the stipend will have the FICA exemption applied only to these retroactive earnings.

 

Questions

Questions regarding this bulletin may be directed to the Tax and Compliance mailbox.