Senators Max Baucus, D-Mont., and Chuck Grassley, R-Iowa, chairman and ranking member of the Senate Finance Committee, respectively, have introduced legislation to give more than $550 million in tax relief for veterans, soldiers and their employers.
Among its provisions, the legislation would:
• Make permanent a provision that allows soldiers to count their non-taxable combat pay when figuring their eligibility for the Earned Income Tax Credit.
• Allow all veterans — not just first-time homebuyers — to use qualified mortgage bonds to purchase their homes.
• Cut taxes for small businesses when they continue paying some salary to members of the National Guard and Reserve who are called to duty.
• Eliminate rules for reporting of income when companies continue paying some salary to members of the National Guard and Reserve who are called to active duty. This makes it easier for reservists to file their taxes and simpler for employers to keep contributing to those employees’ retirement plans.
• Allow the families of soldiers killed in the line of duty to contribute up to 100 percent of survivor benefits to a retirement savings account.
• Allow active-duty troops to withdraw money from retirement plans and give them two years to replace the funds without tax penalty.
• Extend a provision that gives retired veterans more time to claim a tax refund on some types of disability benefit payments.
• Make permanent a provision that gives intelligence service employees a longer period of time to meet residency requirements necessary to exclude profits from the sale of their home from capital gains tax, which is often necessary due to frequent deployment.
• Give the Internal Revenue Service the authority to treat gifts of thanks from states to veterans -- such as payments of excess state revenue -- as nontaxable gifts.
The bill would be paid for with two offsets. The first makes certain that individuals who relinquish their U.S. citizenship or long-term U.S. residency pay the same federal taxes for appreciation of assets, such as stocks or bonds, that they would pay if they sold them as U.S. citizens or residents. The second extends a provision that allows the Social Security Administration to share earnings information so that accurate amounts of pension, dependency and indemnity compensation, hospice care, or unemployment compensation is paid to veterans and their families.
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