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New Kerry Tax Credits Would Protect Soldiers from Pay Cuts

by Pamela Leavey

Once again, John Kerry is fighting for benefits for Veterans and their families, as well as helping small businesses effected by the loss of employees to active duty during the war…

Senators John Kerry (D-Mass.) and Gordon Smith (R-Ore.) today introduced legislation to bolster small businesses and their employees who are called to military service. The legislation has been endorsed by the National Military Family Association and the Reserve Officers Association.

“Our bill provides needed help to the men and women who serve in the military,” Kerry said. “The tax credit will help small businesses compensate for the loss in wages sustained by those who go to battle. It also provides tax credits for businesses, to help offset the cost of paying temporary employees who are hired to fill vacancies left by active soldiers.”

“Many reservists take a pay cut to serve on the battlefield,” Smith said. “Encouraging their employers to make up the difference in pay ensures bills are paid while they are away from home. Relieving some of the financial burden on small firms that go without a skilled worker because of military service helps it avoid setbacks and continue to grow.”

The Active Duty Military Tax Relief Act of 2007 includes the following tax provisions:

Tax Credits for Small Employers of Military Reservists and National Guardsman Called for Active Duty

These credits help small businesses with issues related to employees being called up for active duty. Small businesses with less than 100 employees are eligible for these tax credits.

– Creates a tax credit to offset the cost of paying a salary differential to employees that are called up for active duty. This credit would be equal to the lesser of 40 percent of the differential pay or 40 percent of $25,000 for a maximum of $10,000.

-Creates a tax credit for a temporary replacement worker of up to 40 percent of wages paid, up to a maximum of $15,000 for a total of $6,000.

  • Allows survivors to invest their $100,000 death gratuity payment into a tax favored savings account such as Roth IRAs, Coverdell Education Savings Accounts or Health Savings Accounts
  • Increases the standard income tax deduction by $1000 for active duty military personnel for 2007 and 2008
  • Makes permanent the provision which provides an election to treat combat pay as earned income for purposes of computing the earned income tax credit. This provision is set to expire at the end of 2007
  • Addresses tax issues related to differential pay

    -Subject differential military pay subject to federal income tax withholding

    -Identifies income from military pay and differential pay as compensation from the regular employer

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