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Military Life

The Military Widow’s Tax Is Almost Gone

July 11, 2022 | 3 min. read

After a 40-year battle, surviving military families finally receive all eligible benefits due from the death of their loved ones.

Careers in the military come with inherent risks that those in other industries don’t need to consider. And because nothing is more important to those who serve their country than protecting their families, several public programs were developed to ensure the financial security of military families in the event of a service member’s death.

The Survivor Benefit Plan (SBP)

The Department of Defense introduced the Survivor Benefit Plan (SBP) in 1972. It was originally intended to provide income for families following the death of a retired service member, but it was later expanded to include families of those who die in active service. The SBP provides a taxable annuity or income stream for the life of the surviving beneficiary. While on active duty, service members are provided SBP at no charge. After retirement, service members pay pre-tax insurance premiums directly from their retirement pay for the coverage.

Dependency and Indemnity Compensation (DIC)

The Department of Veterans Affairs (VA) administers a separate benefit for survivors of service members who are killed in the line of duty or as a result of a service-related injury or illness. This benefit, known as Dependency and Indemnity Compensation (DIC), provides a tax-free monthly monetary benefit provided at no cost to service members.

The Military Widow’s Tax

Unfortunately, a law intended to prevent “double dipping” from government funding created an SBP/DIC offset that became known as the widow’s tax. Although not technically a tax, the law does not allow military spouses who were eligible to receive SBP and DIC to receive full benefits from both programs. The SBP amount these spouses expect to receive is reduced dollar-for-dollar by the amount of DIC provided. 

For example, a family who had been paying into the SBP for years might expect to receive benefits of $3,000 per month upon the death of their loved one. But if the family becomes eligible for a DIC monthly award in the amount of $1,000, their SBP payment will be reduced to $2,000 per month. In other words, surviving military spouses who qualify for one program will receive full benefits, but those who qualify for both programs do not.

Although it’s true that women are typically more financially impacted by the death of a spouse than men, the widow’s tax – despite the name – affects men and women alike. Military Times, reports roughly 65,000 military families are affected every year.

The National Defense Authorization Act for Fiscal Year 2020

The average DIC offset to SBP is $925 a month, according to the office of then U.S. Senator Doug Jones. Jones sponsored the bill to end the widow’s tax in the National Defense Authorization Act for Fiscal Year 2020.

The bill stipulates that the offset will be repealed in phases over the next few years. The repeal begins on January 1, 2021, when one-third of expected SBP payments will be restored to survivors. In 2022, two-thirds will be restored. By 2023, eligible survivors will receive full benefits from both the SBP and DIC. The change will occur automatically.

Financial Advisor Pat Plemmons works with military retirees and survivors on a daily basis. He commented, “The impact of the repeal has been huge. Families who have sacrificed so much were unfairly penalized, and the change was long overdue.”

At First Command, we are well versed in military benefits and specialize in financial planning for the military. If you have questions about the SBP, life insurance or retirement planning, please contact your Financial Advisor. For additional information about the SBP, read The Survivor Benefit Plan (SBP) Explained.

First Command does not provide legal or tax advice, and this article does not contain any legal or tax advice. Should you require legal or tax advice specific to your situation, you should consult with an attorney or qualified tax advisor. The information provided to you herein is provided for informational purposes only, is not intended to be tax or legal advice, and should not be used for the purpose of avoiding tax-related penalties under the Internal Revenue Code.

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