Differential Wage Payment Credit for Employers

Posted on 01.28.16

Differential Wage Payment Credit for Employers

A Little Known Fact That Can Help Many Military Families

By: Barry Norris | Tax Associate

In recent years, there have been many efforts to try and ease the burden of Military Deployments on Service Members and their Families.  As an employer, one way that you can help is by offering differential pay to those employees who get called to active duty service with our Armed Forces.  The Differential Wage Payment Credit for Employers is a tax credit available to eligible small business employers that pay differential wage payments to employees for periods that they are called to active duty with the U.S. uniformed services (for more than 30 days).

Differential wage payments are payments that represent all or part of the wages that they would have otherwise received from the employer. This differential wage payment credit is equal to 20 percent of up to 20,000 dollars of differential pay made to an employee during the tax year.

Eligible Small Business Employer

  • Employed on average less than 50 employees on business days during the tax year; and
  • Under a written plan, provides eligible differential wage payments to each of its qualified employees.

Qualified Employee

  • One who has been an employee for the 91-day period immediately preceding the period for which any differential wage payment is made.

Until the recent passage of the Protecting Americans from Tax Hikes (PATH) Act, the credit was not available for differential wages paid after Dec. 31, 2014.  But with its passage, the PATH Act retroactively and permanently extends the credit (Code Section 45P(f), as amended by Act Sec. 122(a)).  Even better, for tax years beginning after Dec. 31, 2015, the Act provides that the Differential Wage Payment Credit for Employers applies to employers of any size (i.e., the less than 50 employee average no longer applies) (Code Sec. 45P(a), as amended by Act Sec. 122(b)).  If taken advantage of, the permanent extension of this credit can play a part in retaining some of our most loyal and hard-working employees.

Questions on how the Differential Wage Payment Credit for Employers may apply to your business? Contact your Keiter representative or send us a message.

Additional Resources:

IRS Form 8932, Credit for Employer Differential Wage Payments