The Senate unanimously passed legislation Tuesday to fix a quirk in the tax code that resulted in Gold Star families seeing huge tax increases on the federal benefits they received.
“Gold Star families have sacrificed so much for our nation, and passing this legislation to remove the exorbitant tax on surviving children’s benefits is the least we can do,” said Sen. Doug Jones, D-Ala., a co-author of the Gold Star Families Tax Relief Act.
The legislation says that benefits put in the name of child of a deceased service member will be taxed as earned income, which would put them under the income tax bracket of the child’s surviving parent or guardian. The 2017 Tax Cuts and Jobs Act had defined the benefits as “unearned income,” subjecting it to higher estate tax rates.
The change resulted in some 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 when they did their taxes this year, forcing many to scramble in order to cover the liability. The Defense Department benefits are often put in a child’s name to circumvent a different issue in the tax code, dubbed the “military widow’s tax,” that can wipe out most of those benefits.
The 2017 tax code change was intended to prevent the wealthy from avoiding estate taxes, according to sources involved in the reform’s drafting, and nobody foresaw that it would ensnare military families too.
“Gold Star families deserve our sympathy and gratitude, not an unfair tax increase thanks to a Congressional screw-up,” said Sens. Mark Warner, D-Va., and Tim Kaine, D-Va., in a joint statement.
Similar legislation has been introduced in the House, which has yet to take it up.
