Though Memorial Day marks the unofficial beginning of summer, it is a somber holiday. It is a day to honor some of the true American Heroes, the members of our Armed Forces who paid the ultimate sacrifice while serving to protect Americans and our way of life. We should all take time to remember and honor those who have fallen and offer our deep appreciation to their families for the sacrifices they have made. This is a good time to look at the various financial benefits and tax breaks available to the families of the fallen. So, with great respect to the survivors, here are some tax considerations related to the very complex tax laws of survivor benefits for our military families.
Tax forgiveness is one of the most valuable survivor benefits; tax that is "forgiven" does not have to be paid. A member of the Armed Forces on active duty who dies while in a combat zone, from injury received in a combat zone, or from an injury that happened as a result of terrorist or military action qualifies for the tax forgiveness provision. Any tax liability that may be owed at the time of death will be forgiven, and any tax liability paid after the date of death will be refunded. It is even possible, based on the circumstances, that the soldier's tax liability for more than the tax year in which the death occurred might be forgiven.
To help survivors meet immediate expenses, the surviving spouse or family of an active duty military member who dies will receive a one-time, lump sum payment of $100,000, the Death Gratuity. If the individual dies within 120 days of retiring, the Death Gratuity is $12,420. These payments are not taxable and are usually paid within a few days of the military member's death.
Dependency and indemnity monthly compensation is another tax-free benefit a surviving spouse may be entitled to if the soldier died or became permanently disabled during active service or from a service-related incident or condition. For low-income surviving spouses and children there is an additional survivor's pension if the solider had wartime service.
Other tax-free benefits include use of base housing or payment of one year of Basic Allowance for Housing, a funeral payment, medical and dental coverage for survivors, a $250 a month transitional assistance for surviving spouses with dependent children, a headstone, a burial in a National Cemetery, and a $400,000 Group Life Insurance benefit.
During a time of great loss, the farthest thing from a survivor's mind is taxes, however eventually they will need to be managed, and the more you know the more financially secure you will be. The benefits you or your surviving spouse might be entitled to and all the rules and regulations that must be followed are complicated. If you are unsure how to take advantage of everything offered and what is tax-free and what is taxable, consult a tax pro to help you keep more of your money.
There is no greater service than to serve your country. Any tax professional would be glad to help answer your tax questions just be sure you talk to someone who is experienced with the types of tax issues you have whether it is survivor benefit related or another tax issue.