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
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Joe DePetris, Jr., and IBO tax return preparation
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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.
