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Differential Pay


Felicia
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For purposes of making contributions, does compensation for SIMPLE IRAs, SEPs and SARSEPs include differential pay under the HEART Act? If so, is it elective or mandatory? Is differential pay included in Compensation for purposes of determining the limits such as 25% of Compensation?

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Yes. Effective for taxable years beginning after 2008, and to remuneration paid after 2008, differential military pay is treated as compensation for purposes of the limitations on contributions and benefits under a plan (Code Section 415) and treated as wages for withholding purposes.

The final Code Section 415 regulations issued in 2007 generally permitted a plan to treat differential pay as compensation for purposes of that section. [Treas. Reg. § 1.415©-2(e)(4), 72 Fed. Reg. 16,878 (Apr. 5, 2007)] More recent legislation mandates this result. [Heroes Earnings Assistance and Relief Tax Act of 2008 (HEART) § 105; I.R.C. §§ 219(f)(12), 414(u)(12), 3401(h)(12); see also I.R.S. Notice 2010-15, 2010-10 I.R.B. 390]

Hope this helps.

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Yes. Effective for taxable years beginning after 2008, and to remuneration paid after 2008, differential military pay is treated as compensation for purposes of the limitations on contributions and benefits under a plan (Code Section 415) and treated as wages for withholding purposes.

The final Code Section 415 regulations issued in 2007 generally permitted a plan to treat differential pay as compensation for purposes of that section. [Treas. Reg. § 1.415©-2(e)(4), 72 Fed. Reg. 16,878 (Apr. 5, 2007)] More recent legislation mandates this result. [Heroes Earnings Assistance and Relief Tax Act of 2008 (HEART) § 105; I.R.C. §§ 219(f)(12), 414(u)(12), 3401(h)(12); see also I.R.S. Notice 2010-15, 2010-10 I.R.B. 390]

Hope this helps.

Yes it does. Thanks so much.

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