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The HEART Act

The President has signed into law the Heroes Earnings Assistance and Relief Tax Act (HEART Act) which includes provisions relating to death, disability and pension benefits.

Some pension plans offer special death and disability benefits for workers and their families if the worker dies or becomes disabled while employed. One provision of the HEART Act (section 104) will allow workers who leave their jobs for active military service, to keep to their employer provided death and disability benefits. Employers will be required to treat workers as if they were rehired the day before they died or became disabled thereby ensuring that the worker was covered by the plan at the time of death or disability.

Some employers offer to pay workers called to active military duty the difference between the military pay and what the worker makes at his regular job. This benefit is called a “differential wage payment.” A provision of the HEART Act (section 105) treats differential wage payments as regular taxable income that counts as compensation for federal income taxes and retirement plans so that workers will continue to earn pension benefits while serving in the military.

Section 107 of the HEART Act makes permanent an exemption allowing reservists called to active duty to take distributions from their retirement savings accounts without the usual 10 percent tax penalty assessed on early withdrawals.

Survivors of service members who die while on duty are sometimes eligible for a “military death gratuity.” The HEART Act (section 109) permits recipients of a military death gratuity to transfer the amount into an IRA, Roth IRA, or education savings account in addition to the maximum allowable annual contribution to such account.

Read the HEART Act Public Law 110-245.

Read a summary of the proposed bill prepared by the Joint Committee on Taxation.