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 CassidyOvernight Health Care: Key Trump drug pricing proposal takes step forward | Missouri Planned Parenthood clinic loses bid for license | 2020 Democrats to take part in Saturday forum on abortion rights The Hill's 12:30 Report — Presented by MAPRx — Trump calls off Iran strike at last minute The Hill's Morning Report — US strikes approved against Iran pulled back MORE (R-La.), who introduced the measure.

Democratic Sens. Mark WarnerMark Robert WarnerGOP senators divided over approach to election security Hillicon Valley: House lawmakers reach deal on robocall bill | Laid-off journalists launch ads targeting tech giants | Apple seeks tariff exemptions | Facebook's Libra invites scrutiny Schiff introduces bill to strengthen law barring campaigns from accepting foreign dirt MORE (Va.) and Tim KaineTimothy (Tim) Michael KaineSchumer: Trump must get congressional approval before any military action against Iran Trump faces skepticism about Iran war authority from both parties Overnight Defense: Shanahan exit shocks Washington | Pentagon left rudderless | Lawmakers want answers on Mideast troop deployment | Senate could vote on Saudi arms deal this week | Pompeo says Trump doesn't want war with Iran 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 NealTrump's tax returns — DOJ trying to put off the inevitable? Democrats talk up tax credits to counter Trump law House panel approves bills on tax extenders, expanding tax credits 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.