Heroes Earnings Assistance and Relief
Tax Act of 2008 signed by Bush
Attention military personnel and employers: In
June, President Bush signed the Heroes Earnings Assistance
and Relief Tax Act of 2008, which contains tax benefits for
service members and others.
Here's an overview of some changes:
- Economic
stimulus payments. The Economic Stimulus Act,
passed earlier in the year, required both you and your spouse to have
valid social security numbers in order to receive a check from the
government.
Under the new law, you'll be eligible for the stimulus payment if
either of you has a valid social security number, as long as you or
your spouse are active or reserve military and you file a joint tax
return.
- Earned
income credit. The earned income credit, which can
reduce your tax and possibly result in a refund even if you owe no tax,
is based on total wages and similar income. Prior tax law provided a
temporary benefit that let you elect to include tax-free combat pay in
the calculation of the earned income credit.
The new law makes the benefit permanent.
- Penalty-free
retirement plan distributions. Amounts you take from
your IRA, 401(k) or certain other qualified plans before retirement are
generally subject to a 10% early withdrawal tax. However, a temporary
special rule allowed an exception to the penalty if you're a military
reservist and you're called to active duty for more than 179 days.
That rule is now permanent.
- Access to
flexible spending arrangements. When you participate in
an employee benefit plan that lets you make pre-tax contributions for
medical and other expenses, you're typically required to use the money
in your account within a certain time period. If you don't, you forfeit
the balance, under what's commonly called the "use it or lose it" rule.
Now, if you're a military reservist called to active duty after June
17, 2008, for at least 180 days, you're exempt from the use it or lose
it rule.
The Act also made additional
changes to retirement plans, created a credit for small employers who
pay differential wages, and established new rules for expatriates.
Contact us for details on these and other provisions.
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