Senate passes bill to undo tax increase on Gold Star military families

Senate passes bill to undo tax increase on Gold Star military families
© Greg Nash

The Senate on Tuesday passed a bipartisan bill to fix an issue where the 2017 GOP tax law raised taxes on military survivor benefits received by children, a sign that addressing the matter has become a high priority in Congress.

Senators passed the measure by unanimous consent, and the House is expected to pass similar legislation this week.


The GOP tax law made changes to the "kiddie tax" — a tax on children's unearned income that was designed to prevent wealthy people from avoiding taxes by shifting their income to their children. Before enactment, children's unearned income was taxed at their parents' rates, but under the 2017 law it is now taxed at the same rates as trusts.

The change had the effect of raising taxes on benefits received by the children of deceased military members, drawing concerns from lawmakers on both sides of the aisle.

Republicans have said that the issue concerning Gold Star families was unintentional, and that they made the changes to the kiddie tax in an effort to simplify how children's income is taxed. They said the provisions resemble a part of a 2014 tax-reform proposal from former Rep. Dave Camp (R-Mich.).

Democrats have brought up the tax increase as part of their criticisms of the GOP tax law, with the Democratic Senatorial Campaign Committee running digital ads on the issue. No Democrats voted for the measure, and they argue that the legislation was passed too hastily.

The bill the Senate passed on Tuesday would lower taxes for Gold Star families by treating the military survivor benefits as earned income for purposes of the kiddie tax, rather than as unearned income. The bill's provisions would take effect retroactively, applying to tax years starting in 2018.

Senators from both parties praised passage of the bill.

“This bipartisan legislation is one step closer to helping those who lost a father or mother serving in the military to protect our freedom,” said Sen. Bill CassidyWilliam (Bill) Morgan CassidyThis bipartisan plan is the most progressive approach to paid parental leave Obstacles remain for deal on surprise medical bills Key House and Senate health leaders reach deal to stop surprise medical bills MORE (R-La.), who introduced the measure.

Democratic Sens. Mark WarnerMark Robert WarnerTikTok chief cancels Capitol Hill meetings, inflaming tensions Watchdog report finds FBI not motivated by political bias in Trump probe Ex-Rep. Scott Taylor to seek old Virginia seat MORE (Va.) and Tim KaineTimothy (Tim) Michael KaineOvernight Health Care — Presented by That's Medicaid — House passes sweeping Pelosi bill to lower drug prices | Senate confirms Trump FDA pick | Trump officials approve Medicaid work requirements in South Carolina Senate confirms Trump's nominee to lead FDA Democrats worried by Jeremy Corbyn's UK rise amid anti-Semitism MORE (Va.) said they are "glad" the Senate has moved to rectify the matter, and they hope the House "will take action swiftly to ensure that Gold Star families aren’t hit with a tax hike.”

In addition to military survivor benefits, the kiddie tax changes in the GOP tax law have drawn concerns for increasing taxes on other types of income, including college scholarships, payments from Indian tribal governments and survivor benefit payments to children of deceased first responders.

The House is planning to vote on a retirement savings bill this week. House Ways and Means Committee Chairman Richard NealRichard Edmund NealOvernight Health Care — Presented by That's Medicaid — Turf war derails push on surprise medical bills | Bill would tax e-cigarettes to pay for anti-vaping campaign | .5M ad blitz backs vulnerable Dems on drug prices Turf war derails bipartisan push on surprise medical bills Expiring tax breaks set off year-end scramble MORE (D-Mass.) has offered a manager's amendment that would have the rules for the kiddie tax revert back to their pre-GOP tax law rules.