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Survivor & Estate Planning

Possible upcoming changes to the "Widow's Tax"

2016-06-27

You may have heard about the “Widow’s Tax” and Congress’ potential changes to the Survivor Special Indemnity Allowance (SSIA).

AAFMAA tracks all benefits for our military families and this article explains the SSIA, the recent news surrounding it, and why there can be confusion about military widow entitlements.

There are two programs benefitting surviving spouses—Dependency and Indemnity Compensation (DIC), administered by the U.S. Department of Veterans Affairs and the Survivor Benefit Plan (SBP), administered by the Defense Finance and Accounting Service (DFAS). These programs serve different purposes, but one can affect the other.

The VA pays DIC — currently $1,254 per month tax-free — to the surviving spouse of a veteran who dies while on active duty, or as the result of a service-connected condition.

DFAS pays SBP as a monthly annuity to the surviving spouse of a military retiree, which can be as much as 55% of the servicemembers’ retired pay.  To enroll in SBP, at the time of retirement a retiree must opt in and contribute 6.5% percent of the SBP-covered amount from their retirement pay.

However, if a retiree dies of a service-connected disability, DFAS reduces the SBP annuity by the amount of DIC. Many refer to this SBP offset as the “widow’s tax” and believe that surviving spouses in this situation should receive both payments because DIC and SBP serve different purposes.

In 2007, Congress passed a law that retained the SBP offset, but provided a taxable SSIA ($310 for Fiscal Year 2017) to partially compensate survivors for the SBP annuity withheld.  SSIA will expire in 2018 unless Congress votes to extend it.  Pending legislation currently under review would extend SSIA for either an additional year or an additional five years — depending on which bill ultimately passes. 

AAFMAA tracks this and all changes to military benefits so you and your surviving spouses receive everything that you deserve. 

If you ever have any questions concerning your military benefits, please contact us at [email protected] or call 888-961-4573.