News

Families of service members who died while on active duty have been adversely affected by recent changes to the tax code. Service members may pay to opt-in to the DoD Survivor Benefit Plan (SBP), a paid annuity program that entitles the spouse or child beneficiary to 55% of the members retired pay at the time of death (a taxable benefit). Surviving spouses also are entitled to VA Dependency and Indemnity Compensation (DIC) which pays $1,300 per month (non-taxable). Federal law prohibits a surviving spouse from receiving both SBP and DIC, unless the smaller payment is offset by a dollar-for-dollar reduction from the other payment. This "widow's tax" reduces benefits an average of $11,000 annually. To avoid the offset, service members typically name their young children, who may receive the benefit until age 18 or 22 (if they are full-time students), as beneficiaries for SBP payments. The 2017 Tax Cuts and Jobs Act changed the rate at which the child SBP payments are taxed, treating them as payments from a trust or estate which can be taxed up to 37%, rather than using the parent’s rate. Advocates have sought to change the widow's tax for 25 years with no result, but legislation to remedy the tax treatment has been proposed.