5 Things You Need to Know About the Widows Tax Repeal Included in the NDAA

5 Things You Need to Know About the Widows Tax Repeal Included in the NDAA
Surviving spouses Kristy DiDomenico, Edie Smith, and Capt. Kathy Thorp, USN (Ret.), a member of MOAA's Surviving Spouse Advisory Committee, stand at the podium together during a Dec. 10 news conference on Capitol Hill. (Jennifer Milbrett for MOAA)

The finish line in the fight to repeal the “widows tax” is within sight, and while there are still critical hurdles to clear, the final product of this extensive effort on behalf of military survivors is taking shape.

 

[TAKE ACTION: Ask Your Senator to Pass the NDAA]

 

Here is what’s known about the plan outlined in the FY 2020 National Defense Authorization Act (NDAA) to end the Survivor Benefit Plan-Dependency and Indemnity Compensation offset. Visit MOAA.org or follow MOAA’s social media platforms for updates; the House agreed to the conference report by a vote of 377-48 on Dec. 11, with Senate action expected soon.

 

1. The logistics. The phased-in approach to repeal is really a three-year rollout with a delayed start. No changes will be made to the benefit in calendar year 2020, but the offset will be reduced partially over 2021 and 2022, with full elimination starting on Jan. 1, 2023.

 

2. The limitations. The benefit will not be extended retroactively. The bill states specifically that “no benefits may be paid to any person for any period before the effective date provided … by reasons made of the amendments made” by the NDAA.

 

3. The “pay-for.” We confirmed with staff leadership on the House Armed Services Committee that no benefits have been or will be reduced to pay for this repeal.

 

 

4. The fine print. The NDAA section addressing the repeal also removes the option for an eligible surviving military spouse to establish an annuity in the name of a dependent child instead of their own. This change would take effect Jan. 1, 2023. Spouses who’ve elected to transfer their annuity payment to a child (or children) will have their eligibility for the benefit restored on Dec. 31, 2022, “whether or not payment to such child subsequently was terminated due to loss of dependent status or death,” per the legislation.

 

Previously, survivors were coerced to transfer their survivor benefits to their children in order to receive both benefits. Those benefits expired whenever the dependent reached the age of majority. But a change in the 2017 tax bill dramatically increased the rate those benefits were taxed at. By repealing the child option, survivors both avoid what’s been termed the “kiddie tax” and receive the full benefits they deserve. However, the current dilemma of this egregious tax remains a challenge, and MOAA is actively pursuing a resolution.

 

5. What’s next. MOAA stands ready to ensure the government rights this wrong. As the full details of the repeal take shape, our legislative and benefits experts will continue to ensure all who’ve waited far too long to receive this benefit will get what’s been promised. MOAA members with concerns about the legislation or further questions on the repeal process can email legis@moaa.org.

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