Eliminating the Widows’ Tax

March 11, 2016

Survivors of deceased servicemembers are required to forfeit all or part of their military Survivor Benefit Plan (SBP) annuity when military service results in the death of their sponsor. This is often referred to as the ”widows' tax.”

Retiring servicemembers may purchase SBP insurance coverage to provide their surviving spouse up to 55 percent of their retired pay in the event of their death for any reason. SBP coverage is automatically provided for deaths that occur on active duty.

If death is determined by the VA to be service-connected, the VA pays the survivor an additional payment called Dependency and Indemnity Compensation (DIC). Currently DIC recipients receive $1,254 monthly, or about $15,000 a year.

However, under the current law, the amount of DIC awarded must be deducted from military SBP annuities. The widow's tax wipes out most - if not all - of the SBP for the vast majority of survivors.

For instance, in the case of an E-6:

SBP DIC Chart

 

In multiple Congresses, lawmakers acknowledged the inequity and co-sponsored corrective legislation to recognize SBP and DIC are paid for different reasons. SBP is a servicemember-purchased annuity, whereas DIC is an indemnity payment when military service caused the member's death.

Further, service-disabled retirees have limited opportunities to purchase additional life insurance, and policies that are available impose exorbitant premiums.

No other federal surviving spouse is required to forfeit his or her federal annuity because military service caused his or her sponsor's death. Additionally, the offset does not apply to surviving military children - only to the spouse.

Tasked by Congress to review the widows' tax in October 2007, the Veterans Disability Benefits Commission (VDBC) agreed with MOAA and other veterans associations that when military service causes the member's death the VA indemnity compensation should be paid in addition to the SBP annuity, not subtracted from it.

In 2008, Congress authorized a Special Survivor Indemnity Allowance (SSIA) as partial recompense for the SBP-DIC inequity. Then-House Armed Services Committee Chairman, Rep. Ike Skelton (D-Mo.), expressed the intent to continue increasing the SSIA and ultimately phase out the widow's tax. SSIA is $275 per month in FY16, and will rise to $310 per month in FY17, covering about 25 percent of the SBP-DIC offset.

However, the legal authority to pay SSIA expires on Oct 1, 2017. Unless Congress repeals the SBP-DIC offset or extends the SSIA authority this year, SBP-DIC survivors will suffer the additional loss of the SSIA, totaling $3,700 annually.

MOAA believes the SBP-DIC offset should be repealed. Because of the current budget environment, securing sufficient funding for a total repeal - approximately $6.5 billion - will be difficult. If full and immediate repeal is not feasible, SSIA should be extended and increased to continue the path toward phasing out the offset.

There are two current bills that would repeal the widows' tax. Click the links to send your legislators messages supporting H.R. 1594 sponsored by Rep. Joe Wilson (R-S.C.) and S. 979 sponsored Sen. Bill Nelson (D-Fla.).

 

 

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