Gold Star Families who paid thousands because of ‘Kiddie Tax’ could see relief in new bills

Photo credit DoD photo by EJ Hersom
By Connecting Vets
This story was updated on May 9, 2019.

Gold Star Families who faced thousands more in taxes this year because of a new “Kiddie Tax” could see some relief from two bills filed this month. 

Rep. Elaine Luria, D-Va., filed a bill that would amend the tax code to treat Gold Star survivor benefits as earned income to counter the so-called “Kiddie Tax” which resulted in Gold Star Families paying more in taxes on their benefits.

A companion bill was filed in the Senate May 8 by Doug Jones, D-Ala. 

Since surviving spouses cannot receive both Veterans Affairs benefits and Department of Defense benefits at the same time, many parents pass along their DoD benefits to children. But the Kiddie Tax taxed those benefits at a rate as high as 37 percent, nearly double the previous rate.

The Gold Star Family Tax Relief Act would classify survivor benefits allocated to the child of a deceased service member or veteran as earned income, and therefore not subject to the Kiddie Tax. The bill, effectively, would “repeal” the tax hike passed as part of the 2017 tax law package, according to a news release from Luria’s office.

Previously, Gold Star Families were taxed closer to 12 or 15 percent but saw those rates rise to 37 percent, according to the Tragedy Assistance Program for Survivors.

Luria’s office said in a statement that if the bill passes it will “significantly” reduce the tax burden on Gold Star Families.

“Gold Star Families have already paid the ultimate price, so it broke my heart when a surviving spouse from Coastal Virginia alerted me to this injustice,” Luria said in a statement. “I knew I had to fight for her in Congress to fix a broken system that should be working for her and her family.”

“Children of those who have paid the highest measure of devotion to our country shouldn’t be burdened with the highest tax rate for their survivor benefits,” Rep. Michael Waltz R-Fla., and co-vice chairman of the For Country Caucus. “(I) urge the House to pass this bill quickly.”

“Gold Star families have given more to our country than most of us could ever imagine," Jones said in a statement. "While we can never repay their immense sacrifices, we do make a solemn commitment to care for them. Unfortunately, thousands of these widows and widowers are currently denied the full benefits they’re due, which forces many to resort to putting some of these benefits in their children’s names. To significantly raise taxes on those children’s benefits is unconscionable, and I am proud to join with my colleague Sen. Cassidy to propose legislation to correct this egregious mistake. It is a first step toward honoring our commitment and making these families whole financially."

Trump's 'Kiddie Tax' cost Gold Star families thousands more in taxes

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