I have an active duty employee in the Middle East who is receive military differential pay. What do I need to know about reporting these payments?
Tax Professional Answers
As a result of revenue rulings on the subject and the HEART Act, differential wage payments made to an individual while on active duty in the United States uniformed services for more than 30 days are subject to income tax withholding, but are not subject to FICA or FUTA taxes.
For the individual they should be reported on Line 7 of the form 1040 as wages. Because differential payments are treated as wages subject to income tax withholding, employers must issue a Form W-2 to any recipients of differential pay.
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