“Gold Star” military families who receive survivor’s benefits from the Defense Department are being squeezed by a provision in the GOP 2017 tax overhaul that has sharply hiked the taxes they must pay.
An apparent effort in the tax law to end a tax loophole for unearned income has managed to ensnare the widows, widowers, and children of fallen service members.
Families report that the taxes they pay on the Defense Department’s Survivor Benefits Plan have shot up as much as tenfold or more, according to the military affairs journal, Task and Purpose.
Cheryl Lankford, a widow whose husband Army Sgt. Maj. Jonathan Lankford, Sr. died in Iraq in 2007, told the publication that the tax on the survivors benefits being paid to her 14-year-old son went from $100 and $200 annually to about $2,500 this year.
“I heard rumors that this year we were gonna be paying a little bit more, especially after the news broke that the taxes have changed and there may be a bit of an increase. I had no idea it would be quite that much money. That was a shocker for me,” Lankford said. Other military families reported similar hikes.
The tax hikes are the consequence of the interaction of changes made by the tax law and existing rules against double-dipping on federal benefits that extend to military families, dubbed the “Military Widow’s Tax” by critics in Congress.
Spouses’ payments through the Defense Department’s Survivor Benefits Plan are offset dollar-for-dollar if they also receive payments through the Department of Veterans Affairs’ Dependency and Indemnity Compensation program. In effect, getting the VA benefit, which is typically larger at just under $16,000 annually, means foregoing the Defense Department benefit, even if the surviving spouse qualifies for both.
To circumvent this, many military families have placed the Defense Department benefit in a child’s name. However, the 2017 tax cut bill championed by the Trump administration, the Tax Cuts and Jobs Act, altered the formula for taxing “unearned income” received by children. Previously, it was calculated at rate based on the parent’s income. Under the new law, it is taxed at the rate for estates. It is not clear why the change, which went unnoticed at the time of the law’s passage, was made.
“The Military Widow’s Tax is unconscionable—but raising taxes on the benefits our fallen servicemembers’ children receive is appalling,” tweeted Sen. Doug Jones, D-Ala., who has introduced the Military Widow’s Tax Elimination Act, which would end the prohibition on double-dipping the benefits. Rep. Joe Wilson, R-S.C., has introduced a companion House version dubbed the Military Surviving Spouses Equity Act.
