The House of Representatives on Thursday passed a fix to a glitch in the 2017 GOP tax overhaul that generated big tax hikes on federal survivor benefits for certain Gold Star families.
The fix, which passed as part of a retirement savings legislative package on a 417-3 vote, must be still reconciled with a Senate bill covering the same issue.
“This bill reverses the harmful tax hikes included in the Republican tax bill. Hiking taxes on Gold Star families and families of first responders is unjust. It insults how sacred these benefits are,” said Rep. Mike Thompson, D-Calif.
The 2017 Tax Cuts and Jobs Act passed by Republicans and signed by Trump re-defined certain survivor’s benefits accruing to children as “unearned income,” subjecting them to higher estate tax rates.
Many families of service members who died in the line of duty have put Defense Department benefits in a child’s name so that they can claim both those benefits and ones from the Department of Veterans Affairs. Otherwise, they would be prevented from claiming both benefits by rules intended to prevent double-dipping — a situation referred to as the “military widow’s tax.”
The tax law change resulted in some military families discovering that taxes on the Defense Department benefits they had put in a child’s name had soared by as much as five times or more this year, forcing many to scramble in order to cover the liability.
“We did not see one unintended consequence and, in this bill, we worked together Republicans and Democrats, to make sure we honor our Gold Star families,” said Rep. Kevin Brady, R-Texas, the ranking Republican on the Ways and Means Committee.
The Senate on Tuesday unanimously passed legislation, dubbed the Gold Star Families Tax Relief Act, to address the problem by eliminating the penalty for families receiving the Defense Department benefits.
The House version passed Thursday as an amendment to the bipartisan retirement planning bill, dubbed the Setting Every Community Up for Retirement Enhancement Act. The House version would go further than the Senate version by eliminating other forms of unintended taxes on benefits accruing to children. The House and Senate versions would have to be combined into compromise version.
“I’m incredibly pleased that we are moving quickly to address the Gold Star families tax issue. I hope we can complete work on that problem as quickly, if not more quickly, than the rest of the provisions in this bill,” said Rep. Adrian Smith, R-Neb.
