We are coming up on the second year of a three-year phase out of what has been known as the "widows tax," which required forfeiture of a dollar of Survivor Benefit Plan (SBP) for every dollar of Dependency and Indemnity Compensation (DIC) received. Please note this is only applicable to those surviving spouses who qualify for both DIC and SBP and are in receipt of the Special Survivor Indemnity Allowance (SSIA).
In Phase 1 (2021), surviving spouse SBP payments were reduced, or offset, by two-thirds of the DIC rather than the full dollar-for-dollar reduction. For many surviving spouses, this resulted in an increase in the amount of SBP paid as the gross amount of their SBP exceeded two-thirds of the DIC. Others have had to wait to see an increase in their benefit.
[MOAA Resources: The Widows Tax]
We are nearing the start of Phase 2 of the elimination of the offset for which the amount offset (or deducted) from the SBP will be reduced to one-third of the DIC payment. To estimate your benefit, subtract one-third of your current base DIC payment from your current gross SBP benefit. The result is approximately what your SBP payment will be in the second phase, plus any COLAs, which is expected to be approximately 5.9%.
Let’s look at an easy example: We will assume a COLA of 5.9% for 2022, which puts the projected 2022 base DIC amount at approximately $1,437.66. One-third of that new DIC amount is $479.22. This is the amount you will subtract from your gross SBP amount. So, if your gross SBP without offset is $1,000, then you would subtract $479.22 from $1,000 to give you a 2022 SBP payment of $520.78 ($1,000-$479.22). You would also receive the SSIA, which is projected to be approximately $346.
These new changes will be effective in January 2022, which you will see reflected on the payment to be received Feb. 1, 2022. If you do not know your gross SBP, you can find that on your annuitant account statements, available in your myPay account. You should also receive an annuity statement in the mail in December 2021.
There are no changes to the post-9/11 active duty survivor child-only SBP option until 2023, and these changes do not impact the retiree child-only SBP option.
Thankfully, many resources are available to help you understand the basics of your benefits. If you are not already a member, please join the Military Widows: SBP-DIC Offset or the MOAA Surviving Spouses and Friends Facebook groups. These pages contain various important files you can use to read up on this and other issues as well as additional posts that might be of interest to you. You can also visit the Defense Finance and Accounting Service (DFAS) website for the most up-to-date information and other guidance, including the June 2021 survivor SBP newsletter, The SBP-DIC Offset Phased Elimination: What to Expect in the Upcoming Phases, as well as a helpful frequently asked questions section. Visit the DFAS website to learn more.