• Home
  • Military Discounts
    • Military & Veteran Discount List
    • Local Military and Veterans Discounts
    • Apple Military Discount
    • Veteran & Military Cell Phone Discounts
    • Gym and Health Club Discounts
  • Benefits
    • 10 Veterans Benefits You May Not Know About
    • Top Military Spouse Benefits
    • Medal of Honor: Benefits, History and Facts
    • Purple Heart Benefits
    • Veterans Health A to Z
  • Housing & Home Ownership
    • VA Loan Calculator
    • VA Loan Limits by County
    • VA Home Loan Guide
    • 5 Benefits of a VA Loan
    • 2022 BAH Rates
    • BAH Calculator
  • Money & Finance
    • 2022 Military Pay Charts
    • 2022 Defense Budget
    • 2022 Military Pay
    • 2022 Military Pay Charts
    • COLA Watch 2022-2023
    • Military Pay Calculator
    • Military Pay Dates
    • VA Disability Rates
  • Jobs
    • Veteran Friendly Employers
    • Military Spouse Employment Preference
    • Veterans Employment and Training Service (VETS)
    • Security Clearance Jobs After the Military
  • Education
    • Veteran Friendly Colleges
    • Online Colleges with Military Discounts
    • Veteran Friendly Colleges Guide
    • Military Spouse Career Advancement Accounts (MyCAA)
    • Monthly Housing Allowance (MHA) for the GI Bill
    • Forever GI Bill
  • Resources
    • How to Get a Veterans ID Card
    • Veterans ID on Driver’s License or ID Card by State
    • Military ID Cards
    • Military Calendar
    • State Veteran’s Benefits
Home » The HEART Act

The HEART Act

What is the HEART Act? This 2008 legislation, officially known as the Heroes Earnings Assistance and Tax Relief Act, made important changes in U.S. law. It affected how service members are taxed and how pension benefits are paid. Service members benefit from provisions of the HEART Act which affect:

  • Retirement plans
  • Life insurance
  • Survivor benefits

Some provisions specifically address tax and retirement pay issues related to service in the Guard or Reserve. Others apply to surviving spouses while others apply to military retirement plans in general.

Heart ActThe act was passed in 2008. Some of the benefits and provisions didn’t become active until 2009. There are benefits that are only retroactive to a certain date. For example, portions of the act’s laws affect only those surviving service members killed on duty since Oct. 7th, 2001. Other provisions may be unaffected by such restrictions on a case-by-case or a per-benefit basis.

Surviving Spouse Benefits Under The HEART Act

Under the HEART Act, survivors of military members who died on active duty may be entitled to certain benefits. They would be otherwise unavailable to them because of how Guard/Reserve active duty status affects civilian employer benefits. Some examples:

  • Companies who employ Guard or Reserve members who die on active duty are permitted to administer the employee’s insurance or other death benefits as though the Guard or Reserve member had been continuously employed. This is rather than having left for active service.
  • Surviving spouses who receive death gratuities and SGLI death benefits are permitted under the HEART Act to invest those benefits into a Roth IRA. Withdrawals are tax-free and without penalty, “at any time up to the amount of the initial investment.”
  • Surviving spouses are also permitted to deposit death gratuity and SGLI payments into Coverdell Education Savings Accounts. This money is considered tax-free “to the extent that such funds are used for the beneficiary’s qualified education expenses.” Any other use of such funds once deposited would be subject to taxation similar to withdrawal rules for other retirement plans.

HEART Act Military Tax Relief

  • The HEART act directs that qualifying military members be given the option of penalty-free distributions from “all qualified retirement plans,” 403(b) plans, and 457 plans. The service member employee in such cases cannot make further elective contributions into the plan for six months after the date of distribution of the funds.
  • Guard and Reserve members who use employer provided flexible spending health care accounts are permitted to apply for refunds of their contributions at the end of the calendar year. Consider this rather than lose the money in cases where they have been called into active duty.
  • The HEART Act requires permanent penalty-free status of all qualified plan distributions taken by active duty reservists called to duty longer than 179 days. Reservists are permitted to “re-contribute these amounts at a later time under certain conditions.”
  • Mobilized Guard or Reserve members receiving differential pay from a civilian employer may have differential pay characterized as wages for tax purposes. This permits the service member to have taxes withheld on that income, preventing a large out-of-pocket tax burden. Small businesses (fewer than 50 employees) may claim a tax credit for 20 percent of the differential pay, up to $4,000.00 under HEART Act laws.
  • In cases where a military member must cash in certain “pension assets to make ends meet while mobilized,” the HEART Act allows Guard and Reserve members to do so without being charged the 10% early distribution tax penalty. Funds may be repaid penalty-free over a two year period after demobilization.

Other Military Benefits Under The HEART Act

  • Economic stimulus payments (when available) are now possible for military families that include a non-citizen spouse and/or adopted child with an Individual Taxpayer Identification Number. This allows the family to claim the payment formerly available only to those with Social Security Numbers. The HEART Act allows stimulus payments for military families “who filed joint returns if at least one spouse was a member of the Armed Forces at any time during the taxable year.”
  • Military families receiving Supplemental Security Income (SSI) for a special needs family member will not have SSI reduced due to the receipt of military allowances or special pay. Prior to the HEART Act, Hazardous Duty Pay and similar compensation forced a reduction in SSI. This caused an undue burden on Guard and Reserve members called to active duty. Under the HEART Act, all non-taxable pay and military allowances are not to be included for the purpose of calculating SSI.
  • Veterans are exempt from a “first-time home buyer rule” denying eligibility to those with the purchase of another principal residence on their credit record in the three preceding years. Veterans using “qualified mortgage bonds to purchase a residence” are no longer restricted by this.
  • Five states have authority to issue “qualified veterans’ mortgage bonds.” Under the HEART Act, the limits of those bonds is increased to $100 million for those issued to vets in Alaska, Oregon, and Wisconsin. HEART also affects the rules for qualified veterans’ mortgage bonds issued in California or Texas. The act repeals a requirement in those states that veterans must have served before 1977 to qualify for the bonds.
  • Tax-free combat zone pay is classified as earned income, making combat zone pay eligible for Earned Income Credit on federal taxes under Heart Act provisions.
  • Tax-free status is given by the HEART Act to “certain state and local payments made to service members” who serve as volunteer firefighters or emergency medical responders in addition to being service members.

Reminder: Tax Laws Are Subject to Change

It’s good to remember that in cases where tax laws are concerned you should consult a tax professional to see how the current year’s tax laws affect provisions of the benefits under the HEART Act.


The laws mentioned here themselves may not have changed. But you may find that other IRS or state tax requirements surrounding such investments may have different rules than in prior tax years.

It’s never safe to assume that tax code will not change. Your HEART Act benefits may not change specifically, but if other rules that affect the same investments are different this year you may find you need the help of a tax professional to get the most out of your deductions where applicable.

It’s also entirely possible that legislation such as the HEART Act itself could be revised and re-introduced in a given tax year. Whether or not such attempts actually pass remain to be seen, but knowing that such laws can change over time is helpful when making decisions on how to approach the current year’s tax filing.


About The AuthorJoe Wallace is a 13-year veteran of the United States Air Force and a former reporter for Air Force Television News


Related Articles
Military Retiree & Annuitant Pay Schedule States & Tax Military Retirement Pay
10 Veterans Benefits You May Not Know About Best States with Veteran Benefits
How to Apply for Disability Pay Blended Retirement System

Military + Veteran Discounts

Want 30+ Mil/Vet discounts to use today? Enter your email for updates and we'll send it!
Name(Required)

VA Home Loans

Popular Articles

2022 VA Disability Rates

2022 Military Pay

Military Pay Calculator

VA Loan Calculator

2022 BAH Rates

Search Veteran.com

Military Benefits Logo

Company

  • About
  • Contact Us
  • Add a Discount
  • Privacy Policy
  • Terms of Use
  • Disclosure
  • Unsubscribe

Quick Links

  • Home
  • Military Discounts
  • Benefits
  • Housing & Ownership
  • Money & Finance
  • Employment
  • Education
  • Resources

Connect With Us

  • facebook
  • instagram
  • pinterest
  • twitter
  • youtube
Copyright © 2022 Three Creeks Media, LLC

Veteran.com is a property of Three Creeks Media. Neither Veteran.com nor Three Creeks Media are associated with or endorsed by the U.S. Departments of Defense or Veterans Affairs. The content on Veteran.com is produced by Three Creeks Media, its partners, affiliates and contractors, any opinions or statements on Veteran.com should not be attributed to the Dept. of Veterans Affairs , the Dept. of Defense or any governmental entity. If you have questions about Veteran programs offered through or by the Dept. of Veterans Affairs, please visit their website at va.gov. The content offered on Veteran.com is for general informational purposes only and may not be relevant to any consumer’s specific situation, this content should not be construed as legal or financial advice. If you have questions of a specific nature consider consulting a financial professional, accountant or attorney to discuss. References to third-party products, rates and offers may change without notice.

Advertising Notice: Veteran.com and Three Creeks Media, its parent and affiliate companies, may receive compensation through advertising placements on Veteran.com; For any rankings or lists on this site, Veteran.com may receive compensation from the companies being ranked and this compensation may affect how, where and in what order products and companies appear in the rankings and lists. If a ranking or list has a company noted to be a “partner” the indicated company is a corporate affiliate of Veteran.com. No tables, rankings or lists are fully comprehensive and do not include all companies or available products.

Editorial Disclosure: Editorial content on Veteran.com may include opinions. Any opinions are those of the author alone, and not those of an advertiser to the site nor of Veteran.com.