09-P-021 Addition of Earnings Code 'MDP' for Military Differential Pay
|DATE:||January 30, 2009|
|SUBJECT:||Addition of Earnings Code ‘MDP’ for Military Differential Pay|
|EFFECTIVE DATE:||January 1, 2009|
|CONTACT:||Earl Brynds||(785) email@example.com|
Addition of New Earnings Code for Military Differential Pay due to Changes by the IRS
Currently, a differential is available, limited to $ 1,000 per pay period, for eligible State of Kansas employees who are activated to full-time military duty, mobilized and deployed for more than 30 consecutive days in support of a military operation to defend our nation, on or after July 1, 2008. This military differential is paid directly to the eligible employees through STARS and reported to the Internal Revenue Service (IRS) on Form 1099 MISC.
Effective January 1, 2009, the IRS rules related to Military Differential Payments have changed. Pursuant to the Heroes Earning Assistance and Relief Tax Act (Pub. L. No. 110-245), all such payments made January 1, 2009 and forward are considered wages for federal income tax purposes and must be reported on the employee’s W-2 forms. However, these payments are still not subject to FICA. Because of these changes, the military differential will now be processed and paid to eligible employees out of the SHARP system. Note that this change does not impact Military Activation payments. Approved Military Activation payments for eligible employees will continue to be processed in STARS.
To administer the military differential from SHARP, a new earnings code will be established effective January 1, 2009. The following earnings code should be used to process military differential pay to eligible employees:
|MDP||Military Differential Pay||MilDifPay||1/1/2009|
The new earnings code is subject to Federal and State withholding taxes but is not subject to FICA. Additionally, ‘MDP’ is subject to UCI, Worker’s Compensation, State Leave and KPERS. Also, a new expenditure sub-object code (1430) has been established in STARS for Military Differential Pay. For more information regarding this new sub-object code refer to Accounts and Reports Informational Circular 09-A-004. Agencies should use the ‘MDP’ earnings code to process any military differential pay for eligible employees starting with the pay period beginning January 25, 2009 through February 7, 2009 paid February 20, 2009.
The Division of Accounts and Reports, Payroll Systems Team, is responsible for adding this new earnings code in the SHARP system. Regents’ institutions are responsible for implementing the new earnings code in their payroll systems.