President Signs Military Tax Relief Legislation

On June 17, 2008, following Congressional passage on May 22, and unusually long delays in getting the legislation to the President, the President signed the Heroes Earnings Assistance and Relief Tax (HEART) Act of 2008 (HR 6081). The legislation allows military personnel to qualify for economic stimulus payments even though a spouse does not have a Social Security number, makes permanent the ability to include combat pay as earned income under the Earned Income Tax Credit, makes permanent and modifies the availability of qualified mortgage bonds used to finance veterans’ residences, allows the day prior to the date of death to be treated as the date an employee in the military returned to work for purposes of qualified plan benefit distributions, permits an employer to make contributions to a qualified plan on behalf of an employee killed or disabled in combat, treats differential wages paid to an employee called to the military as wages for withholding and retirement plan purposes, creates a small employer tax credit for differential wages, extends the limitations period for tax refund credit claims with respect to veterans’ disability determinations, makes permanent the ability of reservists to make penalty-free withdrawals from retirement plans, permits reservists to make penalty-free withdrawals from flexible spending accounts, makes permanent the ability of the Social Security Administration to disclose information to the Veterans’ Administration for purposes of determining veterans’ program eligibility, clarifies that state payments to service members are treated as qualified military benefits, and permits recipients of military death benefit gratuities to roll the sums over tax-free to a Roth IRA or Coverdell Education Savings Account. Three provisions address Supplemental Security Income eligibility for military personnel, veterans, and Americorps volunteers. Provisions are also included to address the sale of a principal residence by Peace Corps volunteers and members of the intelligence community and to clarify that certain property tax rebates and other benefits made with respect to volunteer firefighters and excluded from gross income are not subject to Social Security tax or unemployment tax. The legislation also extends the provision with respect to parity in the application of certain limits to mental health benefits for one year.

The projected ten-year cost of the legislation is $1.3 billion. To pay for these provisions, the legislation revises the expatriation tax rules, treats domestically controlled foreign persons performing services under contract to the United States as U.S. employers, and increases the failure to file penalty.

The date of June 17, 2008, now becomes the enactment date for the legislation.