Legislative Newsletter Update 6 April 2009 

4/6/2009 

Legislative News is AUSA Government Affairs Directorate's 
weekly electronic newsletter, and is published 
every Monday when Congress is in session. 



       

In this issue:

  • TRICARE Fee Increases Coming?
  • More on the “Economic Stimulus” Tax
  • Bill to Reduce “Widow's Tax” for Surviving Military Spouses Passes House

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    TRICARE Fee Increases Coming?


    We have every reason to believe that the Defense Department will once again propose large TRICARE fee increases for military retirees in their fiscal 2010 budget submission. 

    And, once again AUSA and its partners in The Military Coalition have joined forces to fight these unfair increases.  Although your messages to Congress are very effective, Congress has shown by their past actions and current words that they continue to oppose these increases.  However, they have acknowledged that it is getting difficult to hold off the increases because of the economic situation.  Therefore, it’s time to let President Obama and Defense Secretary Robert Gates know where we stand. 

    Please visit our website, www.ausa.org and send our suggested message to them.  Click on Contact Congress, enter your zip code and then click on the AUSA-proposed letter titled, “Please Reconsider TRICARE Fee Hikes.”  We can send a strong message if we work together!

     

    More on the “Economic Stimulus” Tax


    The recent stimulus plan reduces federal income taxes up to $400 for working individuals and $800 for couples via smaller tax withholding from their paychecks.  Non-working military retirees or survivors are not eligible for the tax reduction yet they are still subject to the reduced withholding in their retired pay or survivor annuities.
     
    DFAS is required to use the new tax withholding tables published by the IRS for retired paychecks or annuities beginning on May 1. 

    To add to the confusion, the stimulus bill also provides a $250 payment to those drawing Social Security or VA disability compensation.  So if a retiree or survivor draws VA disability or Social Security, he/she will get the $250 payment on top of the reduced income tax withholding.

    A working retiree who also draws Social Security or VA disability compensation will get the $250 payment and will also have the additional $400 ($800 married filing jointly) withheld from BOTH military retired pay AND employer pay.  

    There will be some rude awakenings next year when retirees or survivors discover they’ve been “under-withheld” and owe an unexpectedly large tax bill on their 2009 taxes.  Check out some examples and how you can protect yourself. 

    -- Non-working military retiree with Social Security or VA disability compensation

    o Will end up having $400/$800 (singe/married) less withheld from their retirement checks this year, but will still owe that money when they file taxes next year.  

    o SOLUTION:  After DFAS executes the new withholding as of May 1, retirees in this category can ask DFAS to restore the previous, higher withholding amount.

    -- Working military retirees who DON’T receive Social Security or VA disability compensation

    o Will have $400/$800 less withheld from BOTH their military retired pay AND from their employer’s pay – a total of $800/$1,600 less withheld, which means they’ll have to pay $400/$800 of that back when they file their 2009 taxes next year (you can only get the tax credit once).  

    o SOLUTION: People who don’t want that to happen can ask EITHER DFAS or their employer to restore the original higher withholding amount after May 1.

    -- Working military retirees who DO receive Social Security or VA disability compensation

    o Will get the $250 payment soon and will ALSO have $400/$800 less withheld from BOTH their military retired pay AND from their employer’s pay -- a total of $800/$1,600 less withheld.  BUT the total tax credit they can qualify for will be $400/$800.  That means they’ll end up having to pay back $650 (single) or $1,050 (joint filer) of that money when they file their 2009 taxes next year. 

    o SOLUTION:  If they don’t want that to happen, they should ask DFAS and/or their employer to increase their withholding an extra $100-$180/month for the rest of the year so they come out even.

     

    Bill to Reduce “Widow's Tax” for Surviving Military Spouses Passes House


    A bill that would increase payments to SBP-DIC surviving spouses and modernize the Thrift Savings Plan (TSP) was passed by the House last week. 

    The Federal Retirement Reform/Reducing Military Family Tax (H.R. 1804), introduced by Oversight and Government Reform Committee Chairman Edolphus “Ed” Towns, D-N.Y., and  Armed Services Committee Chairman Ike Skelton, D-Mo., makes further progress toward ending the military families tax which unfairly penalizes the 55,000 survivors – mainly widows – of those who died as a result of their service-related injuries. 

    H.R. 1804 would incrementally increase the monthly amounts paid under the Special Survivor Indemnity Allowance to surviving spouses or former spouses of deceased service members who are denied the full amount of their annuity under the Survivor Benefit Program (SBP) due to the offset required by the receipt of Dependency and Indemnity Compensation (DIC) from the VA.  The allowance would increase $35 beginning in fiscal 2010 resulting in a monthly payment of $95, and concluding in fiscal 2016 with a $245 increase resulting in a monthly payment of $345.

    "Men and women have served in the armed forces with valor, honor, and sacrifice,” said Rep. Towns.  “At the very least, we must make certain the families of our brave soldiers receive the benefits they earned while serving our country.  It is the most basic debt of gratitude we can offer for their service to our country.”

    “This legislation is latest step in our continuing effort to eliminate the so-called ‘widow’s tax’, which has long denied surviving family members the full payment of their Survivor Benefit Plan benefits,” said Rep. Skelton.

     “While I regret that this bill does not completely end the offset, the House Committee on Armed Services will continue to explore every opportunity to pursue legislation that brings us closer to eliminating the ‘widow’s tax’,  just as we did today with the help of Chairman Towns,” Skelton continued.

    The bill also:

    --Provides for automatic enrollment for federal employees who are eligible to participate in the Thrift Savings Plan (TSP).  In the case of uniformed members of the armed services, the decision is left to the military departments; 

    --Creates within the TSP, a Roth-style investment retirement account option that allows workers to invest after-tax dollars.   This option is particularly beneficial to some members of the armed forces; and, 

    --Provides for additional self-directed investment options and other retirement reforms, such as allowing employees covered by the Federal Employees Retirement System (FERS) to receive credit for unused sick leave toward their retirement annuity, as is currently the case for employees covered by the older Civil Service Retirement System.