I 
108TH CONGRESS 
2D SESSION 
H. R. 5154
To amend the Internal Revenue Code of 1986 to clarify the proper treatment 
of differential wage payments made to employees called to active duty 
in the uniformed services, and for other purposes. 
IN THE HOUSE OF REPRESENTATIVES 
SEPTEMBER 28, 2004
Mr. TURNER of Ohio (for himself and Mr. KLINE) introduced the following 
bill; which was referred to the Committee on Ways and Means 
A BILL 
To amend the Internal Revenue Code of 1986 to clarify 
the proper treatment of differential wage payments made 
to employees called to active duty in the uniformed serv-
ices, and for other purposes.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled, 
SECTION 1. SHORT TITLE. 
This Act may be cited as the ‘‘Uniformed Services 
Differential Pay Protection Act’’.
SEC. 2. INCOME TAX WITHHOLDING ON DIFFERENTIAL 
WAGE PAYMENTS. 
(a) IN GENERAL.—Section 3401 of the Internal Rev-
enue Code of 1986 (relating to definitions) is amended by 
adding at the end the following new subsection: 
‘‘(i) DIFFERENTIAL WAGE PAYMENTS TO ACTIVE 
DUTY MEMBERS OF THE UNIFORMED SERVICES.—
‘‘(1) IN GENERAL.—For purposes of subsection 
(a), any differential wage payment shall be treated 
as a payment of wages by the employer to the em-
ployee. 
‘‘(2) DIFFERENTIAL
WAGE
PAYMENT.—For 
purposes of paragraph (1), the term ‘differential 
wage payment’ means any payment which—
‘‘(A) is made by an employer to an indi-
vidual with respect to any period during which 
the individual is performing service in the uni-
formed services while on active duty for a pe-
riod of more than 30 days, and 
‘‘(B) represents all or a portion of the 
wages the individual would have received from 
the employer if the individual were performing 
service for the employer.’’
(b) EFFECTIVE DATE.—The amendment made by 
this section shall apply to remuneration paid after Decem-
ber 31, 2004.
SEC. 3. TREATMENT OF DIFFERENTIAL WAGE PAYMENTS 
FOR RETIREMENT PLAN PURPOSES. 
(a) PENSION PLANS.—
(1) IN GENERAL.—Section 414(u) of the Inter-
nal Revenue Code of 1986 (relating to special rules 
relating to veterans’ reemployment rights under 
USERRA) is amended by adding at the end the fol-
lowing new paragraph: 
‘‘(11) TREATMENT
OF
DIFFERENTIAL
WAGE 
PAYMENTS.—
‘‘(A) IN GENERAL.—Except as provided in 
this paragraph, for purposes of applying this 
title to a retirement plan to which this sub-
section applies—
‘‘(i) an individual receiving a differen-
tial wage payment shall be treated as an 
employee of the employer making the pay-
ment, 
‘‘(ii) the differential wage payment 
shall be treated as compensation, and 
‘‘(iii) the plan shall not be treated as 
failing to meet the requirements of any 
provision described in paragraph (1)(C) by 
reason of any contribution which is based 
on the differential wage payment.
‘‘(B) 
SPECIAL
RULE
FOR
DISTRIBU-
TIONS.—
‘‘(i) IN
GENERAL.—Notwithstanding 
subparagraph (A)(i), for purposes of sec-
tion 401(k)(2)(B)(i)(I), 403(b)(7)(A)(ii), 
403(b)(11)(A), or 457(d)(1)(A)(ii), an in-
dividual shall be treated as having been 
severed from employment during any pe-
riod the individual is performing service in 
the uniformed services described in section 
3401(i)(2)(A). 
‘‘(ii) LIMITATION.—If an individual 
elects to receive a distribution by reason of 
clause (i), the plan shall provide that the 
individual may not make an elective defer-
ral or employee contribution during the 6-
month period beginning on the date of the 
distribution. 
‘‘(C) 
NONDISCRIMINATION
REQUIRE-
MENT.—Subparagraph (A)(iii) shall apply only 
if all employees of an employer performing serv-
ice in the uniformed services described in sec-
tion 3401(i)(2)(A) are entitled to receive dif-
ferential wage payments on reasonably equiva-
lent terms and, if eligible to participate in a re-
tirement plan maintained by the employer, to 
make contributions based on the payments. For 
purposes of applying this subparagraph, the 
provisions of paragraphs (3), (4), and (5), of 
section 410(b) shall apply. 
‘‘(D) DIFFERENTIAL
WAGE
PAYMENT.—
For purposes of this paragraph, the term ‘dif-
ferential wage payment’ has the meaning given 
such term by section 3401(i)(2).’’
(2) CONFORMING AMENDMENT.—The heading 
for section 414(u) of such Code is amended by in-
serting ‘‘and to Differential Wage Payments to 
Members on Active Duty’’ after ‘‘USERRA’’. 
(b) DIFFERENTIAL WAGE PAYMENTS TREATED AS 
COMPENSATION FOR INDIVIDUAL RETIREMENT PLANS.—
Section 219(f)(1) of the Internal Revenue Code of 1986 
(defining compensation) is amended by adding at the end 
the following new sentence: ‘‘The term ‘compensation’ in-
cludes any differential wage payment (as defined in sec-
tion 3401(i)(2)).’’
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to plan years beginning after De-
cember 31, 2004. 
(d) PROVISIONS
RELATING
TO
PLAN
AMEND-
MENTS.—
(1) IN GENERAL.—If this subsection applies to 
any plan or annuity contract amendment—
(A) such plan or contract shall be treated 
as being operated in accordance with the terms 
of the plan or contract during the period de-
scribed in paragraph (2)(B)(i), and 
(B) except as provided by the Secretary of 
the Treasury, such plan shall not fail to meet 
the requirements of the Internal Revenue Code 
of 1986 or the Employee Retirement Income 
Security Act of 1974 by reason of such amend-
ment. 
(2) AMENDMENTS
TO
WHICH
SECTION
AP-
PLIES.—
(A) IN
GENERAL.—This subsection shall 
apply to any amendment to any plan or annuity 
contract which is made—
(i) pursuant to any amendment made 
by this section, and 
(ii) on or before the last day of the 
first plan year beginning on or after Janu-
ary 1, 2007. 
(B) CONDITIONS.—This subsection shall 
not apply to any plan or annuity contract 
amendment unless—