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Congress must do away with the military’s ‘widows’ tax’

SAUL LOEB/AFP/Getty Images

It’s time for Congress to fix a longtime wrong: legislation that requires survivors of deceased military members to forfeit part or all of their Survivor Benefit Plan (SBP) annuity from the Department of Defense (DOD) when they are awarded the Department of Veterans Affairs’ Dependency and Indemnity Compensation (DIC).

SBP is comparable to an annuity that members pay into. Congress established the benefit plan to ensure surviving dependents of military members would continue to have a reasonable level of income upon their retiree’s death. Active duty members have been automatically covered under this program since 9/11.

{mosads}What makes this legislation an inequity is that SBP is a voluntary, service member-purchased annuity offered by DOD. As such, it is considered a service-earned benefit. It allows the continuation of a portion of military retired pay upon the death of the member. Unfortunately, if service members — active duty or retired — die from a service-related injury or illness (e.g., combat), some or all of the survivor’s SBP is forfeited.

This forfeiture has become known as the “widows’ tax.”

And, for approximately 66,000 military survivors, the widows’ tax makes SBP the only insurance-type product or annuity in the country that you pay into but are legally prohibited from collecting if the death is service-connected.

Surviving spouses of active duty or retired service members who purchased SBP and died of a service-connected cause are forced to forfeit $1 of their military SBP for each $1 received from the VA’s DIC compensation. This offset wipes out most or all of the SBP check for a majority of survivors, for a total loss of approximately $12,000 annually. This includes service members who purchased the plan through deductions from their retired pay.

What other insurance policy sold in the United States is permitted to withhold a death payment to a legal beneficiary? Would this be allowed to happen if a company selling life insurance withheld death payments from beneficiaries? The courts would certainly intervene, as would Congress. So why should the widows’ tax be allowed to continue?

Just picture a surviving spouse after her husband is killed while on active duty. She is at home with their children, left alone to raise the family as a young mom. Expecting payment from SBP that her husband has paid for with his life, along with a death benefit payment from the VA, she learns the expected payment is going to be reduced by approximately $12,000 per year.

The bottom line is this: SBP is a purchased annuity and DIC is a VA-paid monetary recompense for survivors whose sponsors died of a service-related injury or disease. These are two different and separate payments for two different reasons, made by two different agencies. Both are earned. No other federal annuity is structured with this offset.

The widows’ tax defies logic and should be repealed. But the question then becomes, as it always does with Congress, who will pay the difference? When the issue is analyzed, the needle would certainly point to DOD, since it’s the agency that “sold” the SBP policy to service members — and DOD is the banker for all the distributions.

As of this writing, there are approximately 228 House members and 57 Senators who have co-sponsored legislation to repeal the widows’ tax. Other members of Congress need to join in, and then fund this correction without sacrificing other benefits.

Perhaps all members would be well served to remember the words of Abraham Lincoln in talking about veterans and their dependents: “To care for him who shall have borne the battle and for his widow, and his orphan.”

Tom Jurkowsky is a retired U.S. Navy rear admiral and sits on the board of the nonprofit Military Officers Association of America (MOAA), which advocates for a strong national defense and for military service members. He is an adjunct instructor at Anne Arundel Community College in Annapolis, Md. Follow on Twitter @MilitaryOfficer.

Tags Annuities Life insurance United States Department of Veterans Affairs

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