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More Tax Tips for IBOs

By Joe DePetris, Jr., CPA
Tax Consultant to the IBOAI Board

Active Duty Tax Relief
The “Hero’s Earnings Assistance and Relief Act of 2008” (HEART Act), gives tax relief to individuals on active duty, reservists called to active duty,

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military families, and veterans. This could benefit IBOs in the service and their families.

This Act was passed to help soften the economic hardship suffered by families whose loved ones and breadwinners are called to active duty.

Here are some features of the act:

Combat Pay
Combat pay is tax free. However, this tax free treatment can cause some military families to lose eligibility for the earned income credit. The HEART Act treats combat pay as earned income for earned income credit programs. The treatment is permanent and retroactive to December 31, 2007.


Early Withdrawal from Retirement Plans
When reservists are called to active duty, he or she may need to make an early withdrawal from a retirement plan. Normally, if a person is under age 59½ at the time of the withdrawal there is a 10% early withdrawal penalty. The HEART Act permanently waives this penalty for reservists who are called to active duty for at least 179 days.


The reservist has also been given two years after the end of active duty to repay the early distribution to and avoid including the distribution income.

Differential Pay
When a reservist is called to active duty, he or she has to leave their current employer. Some employers voluntarily pay the difference between the reservist pay and his or her military pay (this is called differential pay). The HEART Act gives Small Businesses having 50 employees or less a new credit equal to 20% of differential wages paid to qualified workers called up for active military duty. Eligible differential wage payments are differential payments up to $20,000.


The hope here is that the credit will cause more employers to pay differential pay.

Check with your tax consultant to see how this act may affect your taxes.

Joe

Learn more about Joe DePetris, Jr., and IBO tax return preparation and tax issues at IBO Bookkeeping 101.

Find more Tax Tips for IBOs from Joe DePetris, Jr., CPA.

This article is provided as an educational resource for your guidance, and is strictly informational. It does not constitute legal, accounting, or other professional counsel. Nothing included herein implies a recommendation by the author, the IBOA International, or Amway Global, of any course or method of regulatory compliance. Readers and users who intend to take, or refrain from taking, any action based on information contained herein should first consult with their qualified tax advisor, preferably a C.P.A., or appropriate regulatory authorities.

 
 

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