CALIFORNIA LEGISLATURE—
2019–2020 REGULAR SESSION
Senate Resolution
No. 52
Introduced by Senator Hurtado
(Coauthors: Senators Archuleta, Caballero, Dahle, Dodd, Glazer, Lena Gonzalez, Grove, Hueso, Jones, Nielsen, Roth, Rubio, Umberg, and Wilk)
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July 11, 2019 |
Relative to the widow’s tax.
LEGISLATIVE COUNSEL'S DIGEST
SR 52, as introduced, Hurtado.
Digest Key
WHEREAS, The history of Gold Star Families began in the United States shortly after World War I to provide support for mothers who lost sons or daughters in the war; and
WHEREAS, The reference to the Gold Star comes from the custom of families of service members hanging a service flag in the window of their homes displaying a blue star for every living family member in the service and a gold star for those who had perished; and
WHEREAS, The families of our fallen soldiers have made a tremendous sacrifice on behalf of our country; and
WHEREAS, The Department of Defense’s Survivor Benefit Plan (SBP) allows a retiree to ensure, after death, a continuous lifetime annuity that varies in amount depending on the service member’s rank, and is based on 55% of projected retired pay with 30 years of service, for their dependents; and
WHEREAS, The Department of Veterans Affairs Dependency and Indemnity Compensation (DIC) provides roughly $1,300 per month to a surviving spouse, regardless of the service member’s grade or length of service, which is not taxed or transferable; and
WHEREAS, Recipients cannot double dip, and the DIC and the SBP are offset, meaning that if a survivor chooses to put both the DIC and the SBP in their name, recipients will get a $1 reduction in their SBP for every $1 they receive from their DIC. This dollar for dollar offset in survivor benefits is known as the widow’s tax; and
WHEREAS, To get around the widow’s tax, survivors can put their SBP in their child’s name, and for years, it was a reliable workaround to ensure that military spouses with children who lost a loved one could actually take home the benefits they were entitled to; and
WHEREAS, Previously, survivor benefits that were allocated to the children of a fallen service member were taxed at the parent’s rate; and
WHEREAS, Under the new tax laws, those benefits are instead treated the same as a trust or estate, which means they can be taxed at a rate as high as 37%, and that threshold is reached faster than it was before; and
WHEREAS, Gold Star children are owing the government back thousands of dollars on a government benefit based on the loss of a parent; and
WHEREAS, The increase is due to a change to the kiddie tax under the Tax Cuts and Jobs Act, which the President of the United States signed into law in December 2017; and
WHEREAS, On May 2, 2019, United States Representative Elaine Luria introduced House Resolution 2481 in the 116th Congress, the Gold Star Family Tax Relief Act, to amend the Internal Revenue Code of 1986 to treat certain military survivor benefits as earned income for purposes of the kiddie tax; and
WHEREAS, Under the new legislation, military survivor benefits would be treated as earned income, rather than as unearned income, and would be taxed at a lower rate; and
WHEREAS, About 67,000 Gold Star Families would benefit from this legislation, with the current offset costing them about $12,000 annually; now, therefore, be it
Resolved by the Senate of the State of California, that the California Senate urges the Senate of the United States to act favorably in regard to legislation to end the deduction of survivor benefit plan annuities from Dependency and Indemnity Compensation paid to survivors of fallen service members, also known as the widow’s tax; and be it further
Resolved, That the Secretary of the Senate transmit copies of this resolution to the President and Vice President of the United States, to the Speaker of the House of Representatives, to the Majority Leader of the Senate, and to each Senator and Representative from California in the Congress of the United States.