Recent changes in tax regulations require that military stipend payments be exempt from Social Security and Medicare taxes. Payroll Bulletin No. 914 (Change in Taxation of Military Stipend) explained the regulation and described how the FICA status would be updated for employees beginning or ending military stipend beginning in Pay Periods 9L and 10L.
When an employee receives both military stipend pay and regular earnings in the same paycheck, different tax treatment for these two types of earnings is required. This may occur when an employee is on a Paid Leave of Absence and receives a military stipend, and a retroactive raise is paid in the employee’s regular position. Or, this may occur when a retroactive increase in military stipend is paid, and the employee has returned to his/her regular position. In these situations, OSC must ensure that each earnings is handled individually and that all military stipend earnings are exempt from Social Security and Medicare taxes, while all regular earnings remain subject to these taxes.