Bill clarifies tax breaks for service members - Army News | News from Afghanistan & Iraq - Army Times

Bill clarifies tax breaks for service members

Democratic leaders in Congress are pushing this week for passage of a military-related tax bill that would clarify the payment of economic stimulus rebates to military families.

The clarification spells out that service members filing joint returns are eligible for the rebate even if their spouses do not have Social Security numbers — a provision that would help service members married to foreigners.

The House of Representatives passed the bill, HR 6081, on Tuesday by a 403-0 vote. The Senate scheduled to pass it by the end of the week. Similar legislation passed the House and Senate last year, but the two bodies could never agree on all of the details.

Democrats from the two tax-writing committees, the House Ways and Means Committee and the Senate Finance Committee, have now agreed on details, but it is not clear whether Republicans, who have enough votes in the Senate to throw up procedural roadblocks, will go along.

Enactment is not guaranteed because of how the $2 billion cost of the tax benefits for military members would be covered — by preventing other people and companies from avoiding taxes.

First, it would prohibit U.S. taxpayers from renouncing their citizenship solely to avoid taxes. Second, it would restrict the ability of U.S. government contractors to move offshore to avoid paying Social Security and Medicare taxes.

One of the businesses that would be affected is KBR, a major defense contractor, which has set up a company based in the Cayman Islands where it does not have to pay some taxes that it would incur if based in the U.S.

In a statement, House Democratic leaders called the bill “a modest response to the extended military deployments in Iraq and Afghanistan that have created significant economic hardships for many of our military families.”

Called the Heroes Earnings Assistance and Relief Tax Act, or HEART Act, the bill would permanently allow tax-free pay earned in combat zones to be counted when determining eligibility for the Earned Income Tax Credit. Temporary authority ensuring troops in combat zones remain eligible for the tax break expires at the end of this year.

The bill also would make permanent four other temporary provisions of current tax law. Those provisions allow:

• Mobilized reservists to make penalty-free withdrawals from pre-tax retirement plans.

• Employers to make contributions to the employer-provided retirement plans for employees killed or disabled in combat.

• Full credit toward future civilian retirement for partial wages paid by employers to reservist employees while they are mobilized.

• Military survivors to place death benefits into tax-deferred retirement or savings plans.

Also in the bill is a $4,000 tax credit for small businesses that continue to pay salaries to employees who are mobilized National Guard or reserve members, and a change to a qualified mortgage bond program to make it easier for states to provide low-interest loans to veterans.

The federal contractor provisions are based on a bill, HR 5602, sponsored by Reps. Brad Ellsworth, D-Ind., and Rahm Emanuel, D-Ill., that would require parent companies to pay employment taxes on behalf of U.S. workers when subsidiaries are incorporated in overseas tax havens.

“These government contractors have been receiving millions, sometimes billions, in taxpayer dollars, yet they still have the audacity to circumvent our tax system and cheat their workers, the taxpayers, and our government,” Ellsworth said in March, when the bill was introduced.