Rep. Rick Larsen (WA-02) Rep. John Carter (TX -31) introduced legislation to protect benefits for children of fallen servicemembers. The Children of Fallen Servicemembers AMT Relief Act would change tax law to count a Survivor Benefit Plan annuity paid to a minor beneficiary as earned income, so these payments do not make a child subject to the Alternative Minimum Tax.

“Survivor benefits are not unearned income. These children have endured sacrifice and loss,” said Larsen. “This bipartisan legislation will fix an injustice in the tax code so military families are not unfairly penalized.”

“In the aftermath of a tragedy, the families of America’s fallen heroes should not be burdened with unjustly high taxes due to their loss,” Rep. Carter said. “The AMT was meant for the ultra-wealthy, not for grieving military families. The men and women in uniform and their families sacrifice greatly for our nation, and we need to ensure that our laws are not placing an undue financial burden on a tragic situation.” 

Larsen first became aware of the issues with the tax code after he met Michelle Bartz at a town hall in Bellingham, Washington. Michelle’s husband, Lieutenant Colonel Paul Bartz, was killed in action in Afghanistan after more than 20 years on active duty. After Michelle transferred survivor benefits to their son Logan, she learned the tax code treats Survivor Benefit Plan annuities as a child’s “unearned income,” counting towards the Alternative Minimum Tax. As a result, Logan had to pay tax on the survivor benefits from his father.

The survivor benefit plan is paid either to family of servicemembers who are killed in action or to family of retirees who have elected to contribute part of their retirement pay to establish an annuity. The Children of Fallen Servicemembers AMT Relief Act adjusts the benefits from unearned income to earned income, so children are no longer subject to the Alternative Minimum Tax.