TREA: The Enlisted Association Blog

TREA "The Enlisted Association" Washington Update

• • SBP DIC Offset -- Contact your Members of Congress to Support H.R. 553 and S. 622

TREA "The Enlisted Association" Washington Update

SBP DIC Offset -- Contact your Members of Congress to Support H.R. 553 and S. 622

 TREA's Washington Update
Many articles have appeared in news accounts and print papers as individuals filed taxes on or before April 15. This entry explains the current law on the Survivor Benefit Plan (SBP) and Dependency and Indemnity Compensation (DIC) offset provisions.
TREA supports legislation H.R. 553 and S. 622 to eliminate the offset provisions so that recipients will receive full benefits for both.
 

SBP/DIC Offset and The Kiddie Tax

Child Option/Kiddie Tax

• Surviving spouses sign over their earned benefits to their children in order to temporarily receive all of the benefits. This is known as the "Child Option" for SBP.
• Survivor Benefit Plan (SBP) is taxable, in past years surviving children under the "Child Option" paid an average tax rate of 12-15 percent.
• The changes to the Tax laws that went into effect in 2018 put the children into a different tax bracket known as the "Kiddie Tax" at a 37 percent tax rate. The tax bracket was created to prevent wealthy families from hiding money in their children's names by taxing "unearned income" for children at a higher rate. It is supposed to be a trust/ estate tax.
• Ending the SBP-DIC Offset would allow surviving spouses to reallocate SBP back to themselves, therefore resolving the issue with surviving children and the "Kiddie Tax"

Survivor Benefit Plan (SBP)

• Survivor Benefit Plan (SBP) is a Department of Defense (DoD) insurance annuity program that was established by Congress in 1972 to provide income protection to survivors of retired military personnel.
• SBP is a voluntary program that allows military retirees to make monthly contributions of up to 6.5 percent of their retired pay to secure 55 percent of their military retirement for their surviving dependents.
• Premiums continue until the military retiree has paid 360 payments and reaches the age of 70 (DFAS).
• Following 9/11, Congress expanded SBP eligibility to include all service members who die on active duty. In both cases, SBP annuities are taxable

Dependency and Indemnity Compensation (DIC)

• Dependency and Indemnity Compensation (DIC) is a tax-free benefit paid by the Department of Veterans Affairs (VA) to surviving spouses of service members killed in the line of duty or veterans whose death resulted from a service-related injury/disease.  
• Serves as a reparation or indemnity (hold harmless) payment for the death.
• Provides a flat rate payment, currently $1,319.04 per month, regardless of the service members' grade or length of service.

SBP-DIC Offset

• Federal law requires a $1 reduction in SBP annuity for each $1 received in DIC
• The average offset of DIC to SBP is $925 a month.
• $615 a month will close the gap and finally eliminate the offset when the Special Survivor Indemnity Allowance (SSIA) of $310 is subtracted.
• Military retirees whose survivors will be eligible to receive DIC often have limited options to purchase life insurance because of their history of disability. 
  
  Bipartisan Legislation Introduced in the House and Senate in 116th Congress
• H.R. 553 sponsored by Rep Joe Wilson, R-SC and Rep John Yarmuth, D-KY - 235 co-sponsors
• S. 622 sponsored by Senator Doug Jones, D-AL with 28 original co-sponsors - 58 co-sponsors

TREA recommends that you contact your Congressman and Senators and urge them to support H.R. 553 and S. 622.