Tax Fairness for Military Men and Women
WASHINGTON — Sen. Chuck Grassley today applauded committee approval for legislation
he co-authored to ensure fair tax treatment for men and women serving in the U.S. military and
"With the one-year anniversary of the Sept. 11 terrorist attacks, there's no better time to act,"
Grassley said. "The attacks on the United States a year ago and the reality of the challenge we face
in defeating terrorism around the world has led to a renewed appreciation for the U.S. military. The
sad fact is that right now these men and women don't get a fair shake under the federal tax code."
The Armed Services Tax Fairness Act of 2002, sponsored by Grassley, as ranking member
of the Senate Committee on Finance, and Sen. Max Baucus of Montana, who chairs the Senate taxwriting
committee, would remedy specific tax problems for personnel in the uniformed services and
foreign service, including the following.
In 1997, Congress changed the tax code to exclude gains from the sale of a person's home
from the capital gains tax, below certain thresholds. To qualify, an individual needs to live in the
home for at least two of the five years before the sale. Grassley said this works fine for most people,
but it's not realistic for a lot of people serving in the military who are frequently transferred. The
legislation passed today would establish a special rule for determining the gain that can be excluded
with the sale of these homes.
Right now, if a member of the armed services dies on active duty, the federal government
pays the surviving spouse a death benefit of $6,000. Grassley said that only half of this benefit is
now excluded from taxable income. The tax bill passed today would exclude the entire $6,000
Many Army national guard and reservists travel for weekend drills and spend their own
money for travel and lodging. As a practical matter, these expenses are generally non-deductible for
one of two reasons: either the reservist is part of the 75 percent of the population that doesn't
itemize, or the expenses don't exceed two percent of the reservist's adjusted gross income. The bill
passed today by the Finance Committee establishes an above-the-line deduction for unreimbursed
travel expenses so reservists aren't put in a position of having to subsidize their own training.
Grassley said that Iowa has 799 guard and reservists on active duty.
Under current law, workers can exclude from their taxable income up to $5,000 of employerPage
provided child-care expenses. A separate provision of the federal tax code excludes from income
benefits provided to members of the uniformed services, but it's unclear whether child-care benefits
were intended to be included in that provision. The military provides extensive child-care benefits.
The tax bill passed by the Finance Committee today would clarify that child-care benefits provided
to military personnel would be excluded from income.
"This bill pays respect to the men and women making sacrifices and, in some cases, risking
their lives to protect and defend freedom," Grassley said. "The full Senate should pass the bill before
the session ends this fall." The House unanimously approved a similar tax relief package in July.
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