I’m concerned about conflicting information we’ve received from the IRS and our legal counsel regarding how the USERRA (Uniformed Services Employment and Reemployment Rights Act) pay differential (pay difference between military pay and the employer’s pay) should be treated from a tax perspective. Do we report these payments on a 1099-MISC or on a W-2?
The HR Management & Compliance Report: How To Comply with California Wage & Hour Law, explains everything you need to know to stay in compliance with the state’s complex and ever-changing rules, laws, and regulations in this area. Coverage on bonuses, meal and rest breaks, overtime, alternative workweeks, final paychecks, and more.
Clancy Mendoza of Fisher & Phillips says, “I believe the discrepancy in the advice you’ve been given comes from a revenue ruling that the IRS issued pre-USERRA. The revenue ruling indicated that employers who paid employees the difference between their military pay and their civilian pay were to report those payments on a 1099-MISC form.”
“But USERRA changes how the relationship between the employer and the employee is defined. By applying the requirements of USERRA to the analysis used in the revenue ruling, I believe the pay should now be reported on a W-2. For more information, go to the ESGR website. It’s important to keep in mind that how wages are defined in the Tax Code varies with each factual situation.”
Clancy Mendoza is an associate at the Atlanta, Georgia office of law firm Fisher & Phillips.