Heroes Earnings Assistance and Relief Tax Act
(HEART Act)

On June 17th, President Bush signed the Heroes Earnings Assistance and Relief Tax Act of 2008 (the Heart Act). This new legislation affects the way payments are made to individuals who are called to serve in active military service and also affects the treatment of reservists on active military duty.

Impact on Benefit Administration:

Voluntary Differential Wage Payments

Effective January 1, 2009, under the Heart act, if you are currently paying compensation that a service member would have otherwise earned during a period of active duty you will need to begin to treat this compensation as taxable income. These wages will be subject to income tax withholding requirements and should be treated as compensation for retirement plan purposes.

Differential pay is defined as compensation paid by an employer to an individual, who is on active duty in the uniformed services for a period of more than 30 days, that represent all or a portion of wages the individual would have received from the employer if the individual had remained in active employment with the employer.

Take Action:

By January 1, 2009:

Review your current company procedures – Do you want to continue to make differential payments?
Modify payroll to treat voluntary differential wage payments as taxable income
Modify employee communications, including retirement plan documents to reflect change of tax status for voluntary differential wage payments
On or before the last day of the first plan year beginning on or before January 1, 2010:

Review and amend plan documents relating to voluntary differential wage payment.