'Widow's Tax' to Be Eliminated by 2023 in Proposed Defense Budget

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Soldiers hold folded American flags that will be present to family members. (Elizabeth Fraser/Arlington National Cemetery)
Soldiers hold folded American flags that will be present to family members. (Elizabeth Fraser/Arlington National Cemetery)

The final version of the fiscal 2020 defense budget would phase out the so-called "widow's tax" over three years if passed.

For decades, military families have tried to change a policy that has kept about 65,000 surviving military spouses nationwide from receiving their full survivor benefits. The National Defense Authorization Act proposal would eliminate, over the course of three years, a system by which survivor compensation from the Department of Veterans Affairs is deducted from annuities provided by the Defense Department-funded Survivor Benefit Plan.

The SBP is like an elective insurance policy in which military retirees contribute part of their retirement benefit to ensure family members receive up to 55% of their retirement pay when they die. Many military survivors receive payments through the VA's Dependency or Indemnity Compensation Plan, or DIC; but those who also receive SBP see their VA DIC payments subtracted from the total.

The average offset of the "Widow's Tax" is about $925 per month, experts say.

The first change would occur in 2021, when SBP recipients would begin receiving one-third of the offset amount, according to the NDAA. The following year, the amount would be raised to two-thirds; and in 2023, survivors would receive their full SBP monthly payments in addition to DIC.

Benefits would not be retroactive.

Related: Could the Military 'Widow's Tax' Finally Get Abolished? Here's the Next Hurdle

"The last thing that military spouses should have to deal with after losing a loved one is an unjust reduction in income," Sen. Jeanne Shaheen, D-New Hampshire, said in a news release. "This bipartisan reform finally provides the surviving spouses of our servicemen and women with the full benefits and financial assistance to which they're entitled."

There have been several efforts over the last 18 years to change the policy, but critics have said the cost, which is estimated at $5.7 billion over a decade, would first need a funding source.

Congress is expected to vote on the NDAA on Wednesday, more than a week before the current continuing resolution ends on Dec. 21.

-- Dorothy Mills-Gregg can be reached at dorothy.mills-gregg@military.com. Follow her on Twitter at @DMillsGregg.

Read More: Congress Has Released Its $738 Billion Defense Budget. Here's What's Inside

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