WASHINGTON, D.C. – Yesterday, the U.S. Senate unanimously passed the Gold Star Family Tax Relief Act, a bipartisan bill backed by U.S. Senator Angus King (I-Maine) that would provide financial relief for the families of U.S. servicemembers who have died while on active duty. The bill reverses a provision in the 2017 Tax Cuts and Jobs Act to ensure that Gold Star children who receive Survivor Benefit Plan income are taxed at their individual income rate, and not at far higher trust rates. For a Gold Star child who receives income of $10,000 in Survivor Benefit Plan payments per year, the Gold Star Family Tax Relief Act will result in a tax rate cut of over 68 percent.

“As we approach Memorial Day, it is of vital importance that we heed President Abraham Lincoln’s words, and ‘care for him who shall have borne the battle and for his widow and his orphan,’” said Senator King. “Gold Star families have made profound sacrifices in the defense of our nation, and it is our duty to provide love and support during their time of grief – not to add additional financial hardships. This bipartisan law passed the Senate unanimously because it’s simply the right thing to do, and I hope that it will continue through Congress and to the President’s desk as soon as possible.”

Some children of Gold Star families participate in the Survivor Benefit Plan, an annuity administered by the Department of Defense that pays survivors an inflation-adjusted monthly income. This income is subject to the kiddie tax, which aims to prevent high-income parents from shifting income to their children to take advantage of their child’s lower tax rate.

Since the passage of the tax bill in 2017, Survivor Benefit Plan income subject to the kiddie tax has been taxed at trust rates, rather than at the parent’s marginal rate. Because the 2017 tax bill raised kiddie tax rates to trust levels, many Gold Star families saw their survivor benefits taxed at rates much higher than under previous law. The Gold Star Family Tax Relief Act would make Survivor Benefit Plan payments to a Gold Star child part of that child’s earned income.  Accordingly, Survivor Benefit Plan payments to a Gold Star child would be taxed at the child’s individual income rate.  The Gold Star Family Tax Relief Act would be retroactive to January 1, 2018, providing relief for Gold Star families that have faced hardship due to the current tax treatment of Survivor Benefit Plan payments.