Heroes Earnings Assistance and Relief Tax (HEART)

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US Government HEARTs Military Families

Content provided by BBB Military Line

The HEART Act has a variety of provisions that affect military personnel and their families, with the majority of the changes affecting National Guard and Reserve personnel. Here's a breakdown of the provisions:

  • Surviving Families: A survivor of a service member killed in the line of duty may now contribute all or part of the $100k death gratuity to a Roth IRA account without being restricted by the usual Roth IRA income or contribution limits. This applies to survivors of military personnel killed since October 7th, 2001.
  • Families Qualifying for Supplemental Security Income (SSI): Military families who receive SSI from the Social Security Administration for a special-needs family member will no longer see that assistance reduced because of special military pay and allowances. For example, in the past combat pay and allowances have counted as extra income in the Social Security Administration's calculations, resulting in a reduced benefit when a service member deployed, which effectively penalized the family for the sponsor's deployment. The HEART Act mandates that non-taxable pay and allowances not be included in the SSI calculations, thus protecting or enhancing the SSI benefit for qualifying military families.
  • National Guard and Reserve: If you are mobilized and are receiving compensation, or "differential pay," from your civilian employer, the HEART Act changes the tax status of that compensation. After December 31st, 2008, employers will be able to designate differential pay as wages, which means they will be able to withhold taxes on those wages, so the service member will not be faced with a "surprise" tax bill at the end of the year. Small businesses of less than 50 employees will also be able to take a tax credit for 20 percent of the differential pay, up to $4,000.00.  
    • In another provision, if you find it necessary to tap into your pension assets to make ends meet while mobilized, the HEART Act allows you to make withdrawals without the usual 10% early distribution tax penalty. You may pay back the distribution you took, without penalty, over a two-year period after demobilization.
    • Guard and Reserve members who contribute to an employer-provided flexible spending or "cafeteria plan" health care account can get refunds of contributions at the end of the calendar year rather than lose the money—if they have been mobilized during that year and unable to spend the money as expected.
  • Economic Stimulus Payments: Economic stimulus payments were originally only given to taxpayers with Social Security Numbers, which disqualified service members who filed joint returns that included a non-citizen spouse and/or adopted child with an Individual Taxpayer Identification Number instead of a Social Security Number. The HEART Act fixes this exclusion and permits stimulus payments for affected families who filed joint returns if at least one spouse was a member of the Armed Forces at any time during the taxable year.
  • Veterans: The "first-time homebuyer" rule (denying eligibility to a homebuyer who owned another principal residence in the three preceding years) will no longer affect veterans using qualified mortgage bonds to purchase a residence. Also, there are changes to the rules on qualified veterans' mortgage bonds, a type of bond that only five states have authority to issue. The change affects the annual limit on qualified veterans' mortgage bonds that can be issued in Alaska, Oregon, and Wisconsin, raising it to $100 million. As for qualified veterans' mortgage bonds issued in California or Texas, the HEART Act repeals the requirement in those states that veterans must have served before 1977 and reduces the eligibility period to 25 years (rather than 30 years) following release from military service.

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