Improving the Tax Code Would Better Honor Military Sacrifice

At a recent memorial service for two Connecticut soldiers, I watched several Gold Star families—those with a member killed in military service to our country—grieve, support, and comfort each other. I left the event wondering how our federal government and tax code honor those who laid down their lives for our nation.

We can do better for military personnel who die in service, but not in action, and also for their spouses.

Federal and state governments do offer a wide range of financial benefits for service members—housing allowances, education benefits, medical benefits, and pensions to those who have survived. And some troops’ earnings receive favorable tax treatment from the federal government and in some states..

For enlisted personnel, all earnings while in a combat zone are free of federal income tax but still subject to the federal payroll tax. Officers’ tax-free exclusions are capped, but the amount seems to equate to the foreign income exclusion available to non-governmental workers, at about $10,000 per month. Civilians must be out of the US for at least 330 days to qualify.

The deceased military member has no tax liability for the year of death and for any year ending on or after the first day of active duty in a combat zone. If there are prior years unpaid, they’re forgiven.

However, none of this applies to spouses—and I think that’s where the shortfall in humanity occurs. In the year of death, there should be a provision granting the surviving spouse an exempt amount equal to the amount of the deceased. That should quiet those who may argue that the surviving spouse could be a high-powered executive or a lottery winner, and they don’t deserve the windfall.

States have their own rules regarding taxation of income but, generally speaking, those that follow federal adjusted gross income won’t tax combat pay, nor will they tax any income for anyone killed in combat.

The number of combat zone deaths since 2000 is less than 10,000, so we’re not speaking of a large portion of the population. In addition, if personnel are killed in a training accident, they’re not entitled to the same benefits. I’m at a loss to explain why tax benefits aren’t extended to those killed in service, often when training for combat.

According to a Congressional Research Service report showing trends in military deaths from 2006 to 2021, more than 32% were the result of an accident while only 15% occurred in action. The families of those killed in accidents are feeling the same grief as those killed in action and deserve the same consideration by the tax code.

Congress can act to make these changes. We can look at other examples of how federal legislation was written to help those who experienced sudden and tragic losses.

For victims of the April 19, 1995, Oklahoma City bombing and the Sept. 11 terrorist attacks, the government made tax forgiveness available to those who were killed in those attacks or died in subsequent years from related injuries. It could be argued that tax forgiveness at death 15 years after an event may be super generous, but again, this tax forgiveness only applies to the person injured, not the spouse.

Our federal government equates the loss of life as a victim of an attack to the loss of life of someone in the service of their country. The tax code must do better for those who wrote a blank check made payable to the US for an amount that included their life.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

Morris Armstrong is an enrolled agent and a fellow of the National Tax Practice Institute.

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