Creditable Compensation Law and Legal Definition

Creditable compensation refers to all salary and wages paid to an employee as a result of services performed for the employer or for time during which the member is on paid leave, which are includable on the member's federal form W-2 wage and tax statement under the heading wages, tips, and other compensation.

Creditable compensation includes payments for compensatory time, lump-sum bonus, severance pay, or employer-provided payment for purchase of service credit. Additionally, it shall also include amounts which are not includable in the member's gross income by virtue of the member having taken a voluntary salary reduction provided for under applicable provisions of the Internal Revenue Code. However, a credible compensation shall not include living allowances, expense reimbursements, and lump-sum payments for accrued vacation leave.