Military Update: Congress boosts military pay, benefits
The more difficult U.S. operations in Iraq become, the more conscientious the Congress becomes in addressing weaknesses and inequities in military pay and benefits — or so it seems.
Three days after insurgents downed an Army Chinook helicopter, killing 15 U.S. soldiers and injuring 21, Congress passed tax relief legislation for military families. Two days earlier, as part of an $87.5 billion supplemental bill for military operations and reconstruction in Iraq, Congress also voted to:
• Extend wartime improvements in Family Separation Allowances and Imminent Danger Pay (IDP) through September next year. Lawmakers rejected, for now, a Bush administration plan to roll back the FSA and IDP increases of last April for at least an equal increase in Hardship Duty Pay targeted only at military members serving in Iraq and Afghanistan.
• Improve health care benefits to both mobilized reservists and National Guard personnel and to drilling reservists who are otherwise unemployed or without employer-sponsored health insurance.
First, highlights of the Military Family Tax Relief Act of 2003 (H.R. 3365), which President Bush is expected to sign soon, include the following.
Reserve travel breaks
Drilling reservists and Guard members will be able to claim as tax deductions costs for meals not reimbursed, lodging and transportation when on duty, and staying overnight, more than 100 miles from home.
Such deductions had been allowed only if reservists itemized on tax returns and out-of-pocket travel costs exceeded two percent of adjusted gross income. The change, retroactive to Dec. 31, 2002, will allow reservists to take “above-the-line” deductions from gross income. The tax savings overall are estimated at $850 million over 10 years.
Capital gains on home sales
Servicemembers and Foreign Service Officers will receive relief from a residency rule that since May 1997 has prevented them from sheltering from taxes up to $250,000 ($500,000 for married couples) in capital gains from home sales.
Tax changes from 1997 allow home sellers to shelter their profits only if they lived in the home at least two of last five years before the sale. No exception was allowed for servicemembers or Foreign Service on official assignment away from home.
The bill restores equity by suspending the “two-of-five” rule for up to 10 years because of military or Foreign Service duty. The change is retroactive to capital gains on home sales since May 1997. The estimated savings for military homeowners is $227 million over 10 years.
The military’s $6,000 gratuity to survivors is raised to $12,000, and all of it — not just half — is tax-free. The change is retroactive to Sept. 11, 2001, and costs $122 million over 10 years.
Under the Homeowner’s Assistance Program, servicemembers are reimbursed for declines in home values from base closings and realignments. HAP payments have been taxable. Future payments will be tax exempt, an important change for the next round of base closures to begin in 2005. The estimated savings is $22 million over 10.
Tax filing deadline
Military personnel in combat zones can delay filing tax returns. The deadline extension rules now will apply for any “contingency operation” designated by the secretary of Defense.
Reserve health benefits
Senators also led the full Congress, over administration objections, to open Tricare to some reserve forces on a one-year test basis. Language in the $87.5 billion Iraq supplemental:
• Allows drilling reservists who lack employer-sponsored health insurance to buy into Tricare with premiums set at 28 percent of cost, or roughly $420 for individual coverage, $1,450 for family.
• Makes reserve and Guard members eligible for military health care from the moment they receive mobilization orders, and eligible to keep Tricare coverage for up to six months after mobilization.