The bipartisan Heroes Earnings Assistance and Relief Tax Act (HEART Act) will make permanent essential tax relief for our military families, including tax relief under the Earned Income Tax Credit. The bill also ensures military families receive their recovery rebate checks. 

The HEART Act includes provisions introduced by Rep. Clarke (HR 3933) which will make permanent the ability to include combat pay as earned income for purposes of the Earned Income Tax Credit (EITC); make permanent the Internal Revenue Code provision that permits active duty reservists to make penalty-free withdrawals from retirement plans; and disregard state annuity payments paid to blind veterans when determining SSI eligibility benefits.

 “Our troops are risking their lives thousands of miles from home and many of their families are struggling through tough economic times,” said Clarke. “Extended deployments have taken a toll on our troops in more ways than one.  This legislation will help ensure that our troops and their families get a portion of the tax relief they need and deserve.”

 The legislation requires that combat pay be treated as earned income for purposes of the Earned Income Tax Credit (EITC).  At the end of the year, many soldiers’ families working to enter the middle class will be denied needed tax relief if combat pay is not counted for purposes of receiving the Earned Income Tax Credit. The legislation also ensures military families receive recovery rebate checks that were approved by Congress as part of the bipartisan economic stimulus package. The bill clarifies that a military service member on active duty who files a joint return is eligible for a recovery rebate, even if their spouse does not have a Social Security number.

The HEART Act also helps ensure reservists who are called up for active duty do not suffer a pay cut. A recent Department of Defense survey found that 55 percent of married Guard members and reservists suffer a loss of income when being called to active duty.  The HEART Act provides a tax credit of up to $4,000 for small businesses who continue to pay their National Guard and Reserve employees when they are called to active duty.

The HEART Act does not add to the deficit. The legislation closes an egregious tax loophole that allows government contractors, who receive millions or billions in taxpayers’ dollars, to set up sham companies in foreign jurisdictions to avoid paying Social Security and Medicare taxes. The bill also strengthens current law to ensure that high net-worth taxpayers cannot renounce their U.S. citizenship or terminate their U.S. residence in order to avoid U.S. taxes.

“Big corporations should not be able to cheat tax code while hardworking families play by the rules,” said Clarke. “Our bill shuts down these unjustifiable loopholes and makes tax relief for our troops a priority.”

This new law builds on the progress the New Direction Congress has made on behalf of our troops and veterans.  The Democratic-led Congress has enacted the largest increase in funding for veterans’ health care in the VA’s 77-year history – to strengthen care for the 5.7 million patients—including more than 293,000 Iraq and Afghanistan veterans.  Over Republican objections, the Congress is also fighting to create a new GI Bill to restore full, four-year college education to veterans of the Iraq and Afghanistan wars, to make them part of the American economic recovery, just as they were after World War II.  Last year, we provided a larger military pay increase for our troops, despite Bush Administration opposition.

Approved by a bipartisan majority in the House and Senate, the HEART Act is supported by the American Legion, National Military Family Association, National Association of State Departments of Veterans Affairs, and the Blinded Veterans Association. 

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