Employer Newsletter spring/summer 2011

To Use an M code or Not to Use an M code – That is the Question!

M codes are a tricky thing. There are certainly times when the use of the M code is appropriate and can save time. It is a valid type code you can use; however, you need to be aware of a few things before you do. If you know your employee is close to retiring and the earning period for the lump sum payment falls into the period used to calculate their retirement benefit (the AFC period), it is best to use the A code. If instead you choose to use the M code, an explanation and a month-by-month breakdown of the lump sum payment is required at the time of the employee’s retirement.

An M code can be used to report lump sum payments. Examples of lump sum payments are:

  • settlements resulting from contract agreements;
  • court-ordered back-pay settlements;
  • holiday and longevity pay; or
  • supplemental contract payments, such as coaching contracts.

If the earning periods for the lump sum payment fall into more than one contribution rate period, you need to divide the payment and report each portion in an appropriate month to apply the correct contribution rate.

Only additional compensation can be reported with the M code. If additional service (hours/days) is tied to the payment, you may not use the M code.

There is one case where an M code must be used and it is for education employers only:

  • Effective 6/12/2008, National Board for Professional Teaching Standards (NBPTS) certification payments or bonuses are considered reportable compensation. Education employers are to report the payment as a lump sum using the status code M in the month in which it is paid