Many companies overlook various tax credits either because they are unaware of them or dismiss them as immaterial or irrelevant. However, small savings can add up, so if the cost of securing a tax credit is minimal compared to its benefit, why not claim every penny that is due? One commonly overlooked federal tax credit is the Military Wage Differential Credit, which helps companies support employees called to active-duty service. This credit offers a valuable opportunity for employers to provide differential pay and receive tax credits in return for helping our service members when out on duty.
What to know about the Military Wage Differential Credit
- Provides an incentive for employers to offer differential pay to employees called to active-duty service
- Available for both full-time and part-time employees who are employed for at least 91 days before being called to active duty
- Equals 20% of differential wage payments, up to $20,000 per employee
- Demonstrates your support for military families in your employment
- Claimed using IRS Form 8932
What is the Military Wage Differential Credit?
The Military Wage Differential Credit was created to encourage employers to offer differential pay to employees called to active-duty service. Differential pay is any payment made by an employer to an employee when they are performing active duty for more than 30 days. It was originally established under the Heroes Earnings Assistance and Relief Tax (HEART) Act of 2008 for small employers only and permanently expanded by the Protecting Americans from Tax Hikes (PATH) Act of 2015 to include all employers.
The credit is available for both full-time and part-time employees who are employed for at least 91 days before being called to active duty. The employee must be on active duty for more than 30 days. Multiple eligible periods can be counted during a given tax year.
Why Should Your Business Claim This Credit?
There are significant financial savings for employers to take part in the Military Wage Differential Credit. The credit equals 20% of differential wage payments, up to $20,000 per employee, resulting in a potential $4,000 yearly credit per eligible employee. In addition to financial incentives, offering differential pay demonstrates your business’s dedication to the well-being of military families in your employment.
How to Claim the Military Wage Differential Credit
To avoid errors and maximize your opportunity to correctly claim the Military Wage Differential Credit, it’s important to understand everything that is needed along with using the right IRS form.
- Gather Documentation: To claim the credit, analyze wage records including pay codes and leave dates to determine eligible wages and credit limitations. Not all wages paid during leave dates qualify, but most do.
- Complete IRS Form 8932: Use this form to claim the Military Wage Differential Credit.
How Experian Can Help
Many of our clients already provide Experian with detailed wage information that allows us to calculate the credit if we have accurate leave dates to align with the wage data. With a regular payroll feed, we can provide quarterly estimates during the year of credit amounts for forecasting purposes, but we can also provide annual calculations with a single payroll file for those clients that don’t already have an ongoing feed.
If you already work with Experian Employer Services and have any specific questions or need further assistance, please reach out to your Experian representative or contactjohn.skowronski@experian.com, who leads the team managing this credit. To learn more about taking advantage of tax credits with Experian, visit our page with more information here.