This act provides tax relief to those on active duty, reservists called to active duty, military families, and veterans.

Combat Pay

Combat pay is not taxed and as a result some military families have lost eligibility for the Earned Income Tax Credit (EIC). Now combat pay is considered income when determining eligibility for the EIC. This adjustement is permanent and retroactive to December 31, 2007.

Economic Stimulus Payments

Due to provisions of the stimulus act, some military families whose spouse lacked a SSN where not able to receive a stimulus payment. This has now been corrected.

Retirement Savings

Reservists who are called to active duty and made early withdrawls from a retirement plan may have been subject to penalties. These penalties are now permanently waived for reservists called up for more than 179 days. They will have two years from the end of the active duty period to repay the distribution without having to inlude it in income.

Death Benefits

The survivors of servicemen and women who die in the line of duty and in certain other circumstances receive death benefits tax free. This act allows the beneficiary to invest the benefit in a Roth IRA or Coverdell education savings account notwithstanding the applicable contribution limits. Time limits do apply, if this applies to you please contact your tax professional as soon as possible.

Additional Provisions

• The time period for retired military personnel who receive disability who are filing claims has been extended.
• Provides for state and local tax benefits and that limited payments made to emergency response volunteers are excludable from gross income and are not subject to Social Security taxes, unemployment taxes, or wage withholding for tax years between 2007 and 2011.
• Permanently extends the exception to the first time homebuyer rule for qualified mortgage bonds for veterans.
• Clarifies that state-paid veteran's bonuses are tax-free.