House committee approves military tax breaks

By William H. McMichael - Staff writer
Posted : Thursday Nov 1, 2007 21:03:55 EDT

Service members, veterans, firefighters and certain volunteers moved a step closer to maintaining current tax and earnings benefits — and gaining new ones — under a bill approved Thursday by a House committee.

The House Ways and Means Committee agreed to the Heroes Earnings Assistance and Relief Tax Act of 2007 without a quibble over the bill’s 14 benefits, which include making permanent a provision that makes the refundable Earned Income Tax Credit more accessible for military personnel.

“America is forever in debt to the women and men in the armed forces for the great sacrifice they make on behalf of all Americans,” Rep. Charles Rangel, D-N.Y., the committee chairman and chief sponsor of the bill, said in a statement. “This bill makes a small but important step honoring their commitment by giving much needed tax relief to them and other volunteers who are our first line of defense in times of emergencies.”

“There’s a lot of good things in here that do little things to make the system work better,” said Rep. Jim McDermott, D-Wash.

One such thing is the Earned Income Tax Credit. Under current law, pay earned by all enlisted members and most junior officers in a combat zone isn’t subject to federal tax. But a certain baseline level of taxable income is required to qualify for the Earned Income Tax Credit, which is aimed mainly at helping low-income households stay off welfare. The credit can translate into a larger refund, depending on the amount earned and how many children live in the household.

Under a temporary change made a few years ago, service members have the option of counting pay earned in a combat zone as taxable income for the purpose of qualifying for the EITC.

In addition to the bill’s 14 provisions, the committee approved four “revenue raisers” to help cover the costs of the new breaks and benefits. One would raise the penalty for failing to file a tax return.

The committee spent most of its time debating an amendment that would have allowed states to exclude the basic allowance for housing when calculating whether military families qualify for a low-income housing tax credit. The suggestion was voted down.

If the bill ends up being passed by the full Congress and signed into law, it would:

* Make permanent the ability to include combat pay as earned income for purposes of the Earned Income Tax Credit.

* Make permanent and modify qualified mortgage bonds used to finance residences for veterans.

* Modify the Uniformed Services Employment and Reemployment Rights Act to allow the day before the date of death to be treated as the date the employee returned to work for purposes of triggering payment of benefits under a qualified plan.

* Permit an employer to make certain contributions to a qualified plan on behalf of an employee who was killed or disabled in combat.

* Include differential wages paid by an employer to an employee who goes on military active duty in the calculation of wages for retirement plan purposes.

* Clarify the tax treatment for certain rebates of deductible state and local taxes for volunteer firefighters and exclude from income certain reimbursable expenses incurred in the line of duty by volunteer firefighters.

* Extend the time limit for filing tax refund credit claims arising from Department of Veterans Affairs disability rulings.

* Make permanent the expiring Internal Revenue Code provision that allows reservists to make penalty-free withdrawals from retirement plans when mobilized for active duty.

* Make permanent the expiring provision that authorizes the Social Security Administration to disclose tax return information to the VA for purposes of determining eligibility for certain veteran’s programs.

* Permit recipients of military death benefit gratuities to roll over the amounts received, tax-free, to a Roth IRA or an Education Savings Account.

* Clarify the application of the “five-year requirement” to the sale of a principal residence by a Peace Corps volunteer.

* Reclassify military cash allowances as earned income, which is included in Supplemental Security Income eligibility and benefits for military families.

* Disregard state annuity payments paid to blind veterans when determining SSI eligibility and benefits.

* Disregard benefits or allowances paid to all AmeriCorps volunteers for purposes of determining SSI eligibility and benefits.

The bill is now ready for consideration by the full House.
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