03.03.16 |
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Active Duty Employee Differential Wage Payment Credit Now Available to All Employers

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Since 2008, the Internal Revenue Code has allowed a credit of up to $4,000 per year for employers who continue to pay qualified employees while on active duty in the uniformed services of the United States.1 The Active Duty Employee Differential Wage Payment Credit (the “Differential Wage Payment Credit”) allows a credit of 20 percent on the first $20,000 of eligible differential wages paid to a qualified employee while on active duty. As originally established, the credit was only available to “eligible small business employers,” which were employers who employed an average of less than 50 employees during the taxable year.2 The Differential Wage Payment Credit expired for any payments made after December 31, 2014.3

Two major changes were made to the Differential Wage Payment Credit as a result of the enactment of the Protecting Americans from Tax Hikes (PATH) Act of 2015. First, this Credit was extended and made permanent.4 Second, the “eligible small business employer” requirement was removed effective for tax years beginning after December 31, 2015, making the credit available to all employers.5

Here is an overview of the requirements of the Differential Wage Payment Credit:

  • In order to be deemed a “differential wage payment,” the payment must be made by an employer to an individual who is performing service in the uniformed services while on active duty for a period of more than 30 days.6
  • The individual must have been an employee of the employer for the 91-day period immediately preceding the period for which any differential wage payment is made.7
  • The employer must be in compliance with requirements under employment and re-employment rights of members of the uniformed services under federal law.8

Additional tools and resources related to tax credits can be found here.
Learn More About ADP SmartCompliance® Tax Credits


The information provided in this blog post is for informational purposes only and not for the purpose of providing accounting, legal, or tax advice.  The information and services ADP provides should not be deemed a substitute for the advice of any such professional.  Such information is by nature subject to revision and may not be the most current information available.


1 Section 111(a) of P.L. 110-245 (Heroes Earnings Assistance and Relief Tax Act of 2008) added Internal Revenue Code Section 45P.

2 Section 45P(b)(3), prior to amendment by P.L. 114-113, Division Q.  P.L. 114-113 can be found at https://www.congress.gov/bill/114th-congress/house-bill/2029/text

3 Section 45P(f), prior to amendment by P.L. 114-113, Division Q.

4 Section 122(a) of P.L. 114-113, Division Q removed Section 45P(f).

5 Section 122(b)(2) of P.L. 114-113, Division Q removed Section 45P(b)(3).

6 Section 3401(h), Section 45P(b)(1).

7 Section 45P(b)(2).

8 Section 45P(d).



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