If you lost a loved one in the military, you should know that some important tax issues can arise. One question that comes to mind at this point is: are military survivor benefits taxable? The Department of Defense, the Department of Veterans Affairs, the Social Security Administration, and the Internal Revenue Service (IRS) provide survivor benefits that have tax implications.
The following information gives a general overview of some of the most common benefits and how taxes may affect them. However, each agency may have updated benefits and requirements.
In some cases, tax forgiveness is available to US Armed Forces members who die while on active duty, either due to an injury or illness. When this occurs, the IRS removes the soldier’s income tax liability from the tax year in which the death occurred. Taxes that have been forgiven do not have to be repaid. The member is also forgiven their tax liability for any previous tax year ending on or after the first day they served in a combat zone. There will be no tax liability owing at death, but there will be a refund if any tax liability is owed after that date.
Certain members of the Armed Forces serving outside combat zones are also eligible for their taxes to be forgiven. Since tax forgiveness is only available for a member of the military’s portion of joint tax liability, the rules for tax forgiveness become very complicated when joint tax returns are filed. Consulting a tax preparer is one of the best ways to understand all details fully.
Agencies That Help
In the event of a soldier’s death in action, various agencies offer services and financial assistance. The Department of Defense, for example, provides survivors with a range of benefits. A one-time, non-taxable death gratuity of $100,000 is one of the most beneficial forms of assistance. It helps with immediate expenses and assists during the readjustment period.
In addition, survivors can live in government-subsidized housing or receive a lump-sum payment for housing costs up to one year after the death. Relocation costs are also covered within one year after the service member’s death. Neither the relocation costs nor the housing benefits are tax-exempt.
Survivor Benefit Plan
Additionally, the US Department of Defense administers a program known as the Survivor Benefit Plan. If the service member had retired on 100% disability at death, the surviving spouse would receive over 50% of their retirement. Inflation-indexed payments are subject to income tax.
Dependency And Indemnity Compensation (DIC)
The Dependency and Indemnity Compensation payment is a monthly compensation paid by the Department of Veterans Affairs to survivors. Disbursements will be made at a flat rate adjusted annually for inflation. Surviving spouses who have dependent children are eligible for additional monthly amounts for each child and $250 in transitional assistance. Taxes do not apply to Dependency and Indemnity Compensation payments or transitional assistance payments.
Dependent Benefits For Widows/Widowers
A widow, widower, or dependent may also qualify for Social Security benefits. Surviving spouses may be required to pay taxes on up to 85% of Social Security benefits, depending on their income. Generally, a surviving recipient’s total income determines the taxable amount. It is common for dependent children to receive benefits subject to tax only if they receive income from other sources.
Last but not least, remember that a survivor’s use of the payments may have tax implications. In some cases, surviving spouses do not have to pay taxes on their assistance, but the earnings from their investments are taxable if they were invested. For more information on these benefits and their eligibility requirements, visit the agencies’ websites cited.
To understand which disability benefits apply to you, head to PAGuard to read through our resources today!