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A controversial policy that reduces the benefits of military spouses is being phased out. The so-called “widow’s tax” cuts assistance to surviving military spouses who qualify for benefits under two different military benefit programs.
The two programs are:
- The first is the Department of Defense’s Survivor Benefit Plan (SBP). The SBP allows a military retiree to contribute part of their benefit to ensure that family members receive an annuity of up to 55% of their retirement pay when they pass away.
- The second program is the Department of Veterans Affairs’ Dependency and Indemnity Compensation (DIC). The DIC awards approximately $15,000 a year to survivors of veterans or troops who die of service-related causes.
The SBP and DIC are different programs and are funded by different federal agencies. However, under the current policy, spouses who are eligible for both benefits have their SBP payments offset by the DIC money the spouse receives. An estimated 65,000 families are affected by the offset, costing them thousands of dollars in benefits. Military families have been fighting to eliminate the widow’s tax for years, but they have not had any success until now.
Signed into law in December 2019, the bipartisan FY20 National Defense Authorization Act eliminates the widow’s tax in phases, beginning in 2021. SBP recipients will receive one-third of the DIC offset amount in 2021 and two-thirds of it in 2022. In 2023, spouses can receive both benefits in full.