The HEART Act (Heroes Earnings Assistance and Relief Act of 2008) provides that, for purposes of income tax withholding, any differential wage payment is to be treated as a payment of wages by the employer to the employee. The term "differential wage payment" means any payment made by an employer to an individual with respect to any period during which the individual is performing service in the uniformed services while on active duty for a period of more than 30 days, and represents all or a portion of the wages the individual would have received from the employer if the individual were performing service for the employer. The HEART Act modifies the holding in Revenue Ruling 69-136 in that differential wage payments that qualify under the Act are not subject to income tax withholding.

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.