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Lawmakers Crafting Bill to Fix Tax Law’s Hit on Military Families

April 30, 2019, 7:21 PM

Two members of the House Ways and Means Committee said a bill is in the works to fix a 2017 tax law provision imposing higher taxes on survivor benefits for military families.

Families previously paid an average of 12 percent to 15 percent in taxes on the survivor benefit. Now, they are paying a tax rate of up to 37 percent, because the tax law said the benefits should be treated as a trust or estate, according to a letter from Sen. Amy Klobuchar (D-Minn.) flagging the issue.

Republicans said the change was a drafting error in the 2017 tax law.

“We’re going to introduce a bill to do a correction that would exempt the survivor benefits of Gold Star families,” Rep. George Holding (R-N.C.) said April 30. The bipartisan bill could come as soon as this week, he said.

While Democrats have been hesitant to make changes to the tax law, because Republicans wrote it, Rep. Ron Kind (D-Wis.), a Ways and Means member, said he has heard about the issue from families in his district.

“We need to alert people about this unintended consequence,” he said.

Ways and Means Committee Chairman Richard Neal (D-Mass.) said that he was aware of the issue and looking into it.

To contact the reporters on this story: Colleen Murphy in Washington at cmurphy@bloombergtax.com; Kaustuv Basu in Washington at kbasu@bloombergtax.com; Robert Lee in Washington at rlee@bloombergtax.com

To contact the editor responsible for this story: Patrick Ambrosio at pambrosio@bloombergtax.com

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