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January 12, 2023 | 18 min. read
The so-called “military widow’s tax” is set to be fully repealed when full SBP payments are restored to surviving military spouses.
For years, the surviving spouses of service members killed in the line of duty were prevented from collecting the full benefits to which they were entitled by a law intended to prevent double dipping from government programs. This became widely known as the “widow’s tax.” On Feb. 1, 2023, the final step necessary to fully restore these benefits to approximately 65,000 surviving military spouses will be taken when they begin receiving full Survivor Benefit Plan (SBP) and Dependency and Indemnity Compensation (DIC) payments. This is the result of a bill included in the Fiscal Year 2020 National Defense Authorization Act (NDAA).
What are SBP and DIC?
The Survivor Benefit Plan (SBP) was introduced by the Department of Defense in 1972. Originally intended to provide income for families following the death of a retired service member, the program was later expanded to include families of service members who die in active service. For additional information about the SBP, read The Survivor Benefit Plan (SBP) Explained.
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 service-related injury or illness. This benefit, known as Dependency and Indemnity Compensation (DIC) provided a tax-free monthly benefit at no cost to service members.
What is the military widow’s tax?
Technically, it’s not a tax. It’s what happens when a military spouse is eligible to receive both Dependency and Indemnity Compensation (DIC) and Survivor Benefit Plan (SBP) benefits as a result of their spouse’s death in the line of duty (or as a result of a service-related injury or illness). Because of the double dipping restriction, their SBP benefit is reduced dollar-for-dollar by the amount of their DIC benefit. The “tax,” in other words, is the loss of a portion of the monthly SBP benefit to which they would otherwise be entitled.
The National Defense Authorization Act for Fiscal Year 2020
The average DIC offset to SBP was $925 a month, according to the office of then U.S. Senator Doug Jones of Alabama. who sponsored the bill to end the offset in the National Defense Authorization Act for Fiscal Year 2020. The bill stipulated that the DIC offset to SBP would be repealed in equal phases over a three-year period. It began on January 1, 2021, when one-third of SBP benefits were restored to survivors. In 2022, two-thirds of SBP benefits were restored. Finally, effective February 1, 2023, the surviving spouses affected by the widow’s tax will have their full SBP benefits restored.
First Command 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 this change was long overdue.”
Changes to related benefits
Some benefits that were specially created or used as a work-around to avoid the SBP offset will be adjusted to reflect the repeal of the widow’s tax. These include:
Optional Child Annuity Reversion
Some surviving spouses may have decided to elect Child Only SBP because the Child Only SBP amount was NOT subject to the offset. Beginning in 2023, surviving spouses who have not otherwise lost eligibility by remarrying before age 55 will see Child Only SBP revert to themselves, and the eligible child(ren) will no longer receive that benefit.
If the surviving spouse remarried prior to age 55 and lost SBP eligibility, then the eligible child(ren) will continue to receive the Child Only SBP after January 2023. If their child had previously aged out and was no longer receiving the Child Only SBP, the surviving spouse will see the SBP amount revert to them in January 2023. This reversion is mandated by law and is not voluntary. For additional information, please see the “Optional Child Annuity” Reversion to Surviving Spouse in 2023 section on the DFAS website.
Special Survivors Indemnity Allowance (SSIA)
This benefit was paid to surviving spouses whose DIC was offset by SBP. This benefit was eliminated when the offset was completely repealed and will no longer be paid beginning February 1, 2023.
Summing things up
The much-criticized military widow’s tax, which has long reduced the amount of cash support some military widows received each month, is finally going away. The process to eliminate it that began with a bill in the 2020 National Defense Authorization Act (NDAA) will conclude this year when all military widows who are eligible for full Dependency and Indemnity Compensation (DIC) payments will become eligible to also receive full Survivor Benefit Plan (SBP) payments.
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.
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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