2008 Heroes Act Provides Tax Relief for Military Members and Their Families

June 03, 2008

The recently enacted "Heroes Earnings Assistance and Relief Tax Act of 2008" provides certain tax relief for military
members and their families. The Act provides the following:

• Clarifies that those in the active military who file a joint tax return are eligible for the stimulus rebate payment
under  the Economic Stimulus Act of 2008 even if one spouse does not have a Social Security number. 

• Makes permanent the ability to include combat pay as earned income for purposes of the earned income tax
credit. 

• Modifies the law which provides certain retirement plan protections for reservists who are called to active duty and who are able to return to their civilian employers after their service ends by requiring tax-qualified retirement plans to   provide that if a participant dies after 2006 while performing qualified military service, his or her survivors would be entitled to any additional benefits (other than benefit accruals relating to the period of qualified military service) that would have been provided had the participant resumed employment and then terminated employment on account of  death. Similar rules apply to 403(b) annuities and 457(b) plans. Additionally, retirement plans can permit individuals who leave for qualified military service and cannot be reemployed on account of death or disability after 2006 to be treated as if they had been rehired as of the day before death or disability and then had terminated employment on the  date of death or disability. 

• Includes differential wages paid by an employer to an employee who becomes active duty military in the calculation  of wages for retirement plan and IRA purposes, effective for years beginning after 2008. Differential pay is also made subject to federal income tax withholding, effective for amounts paid after 2008. 

• Makes permanent the expiring Internal Revenue Code provision that permits active duty reservists to make
penalty-free withdrawals from retirement plans. 

• Provides small employers with a 20% tax credit for differential wage payments made to employees who are on active military duty. 

• Allows members of the reserves who are called to active duty to withdraw unused amounts held in a health flexible spending account (health FSA). 

If you would like more information on the Heroes Act, please contact Christine Burke Worthen, a shareholder and Chair
of Eaton Peabody's Tax Practice Group,whose practice areas include ERISA and employee benefits .

This alert is provided as general information, and is not a substitute for legal or other professional advice.
To ensure compliance with requirements imposed by the U.S. Treasury Department and the Internal Revenue
Service, we also inform you that any federal tax advice contained in this communication (including attachments) is
not intended or written to be used, and cannot be used, for the purpose.