HR6190-119

What This Bill Does

The Tax Cuts for Veterans Act rewrites Internal Revenue Code section 122. For members or former members of the Armed Forces, gross income would not include any retired or retainer pay paid under title 10 or title 14, or covered monthly compensation, pension, pay, annuity, or allowance under titles 10, 14, 37, or 38 connected to a disability, combat-related injury, disability, or death of a member of the Armed Forces, except amounts already excluded under section 104(a)(4). For members or former members of the uniformed services who are not members or former members of the Armed Forces, the bill excludes reductions in retired or retainer pay under title 10 chapter 73, and preserves exclusion of retired or retainer pay until the individual has recovered consideration for the contract. It repeals title 10 section 1403, makes conforming amendments to section 72(n) and the section 122 table entry, and applies to taxable years ending after enactment.

Who Benefits and How

Military retirees benefit because retired and retainer pay under title 10 or title 14 would be excluded from Federal gross income. Disabled veterans receiving covered monthly compensation or pensions benefit when payments connected to disability or combat-related injury are excluded. Survivors receiving covered military death-related annuities or allowances benefit from the expanded exclusion for payments connected to a member’s death. Coast Guard retirees benefit because title 14 retired or retainer pay is included in the Armed Forces exclusion. Uniformed services retirees outside the Armed Forces benefit from continued exclusion of certain chapter 73 survivor-annuity reductions.

Who Bears the Burden and How

IRS tax administration staff must update forms, guidance, withholding systems, and audit rules for the rewritten section 122 exclusion. Treasury revenue estimators must account for reduced taxable income from military retirement and related benefit exclusions. Federal taxpayers bear the cost of lower income-tax receipts from expanded exclusions. Military pay administrators must coordinate tax reporting so covered retired pay, retainer pay, and related benefits are treated consistently.

Key Provisions

• Expands the section 122 income exclusion for Armed Forces retired or retainer pay under title 10 or title 14.
• Provides a gross-income exclusion for covered military compensation, pension, pay, annuity, or allowance connected to disability, combat-related injury, disability, or death.
• Extends exclusion treatment for certain uniformed services chapter 73 retired-pay reductions until consideration for the contract is recovered.
• Repeals title 10 section 1403 and removes the corresponding chapter 71 table entry.
• Modifies Internal Revenue Code section 72(n) and the section 122 table entry for conforming tax treatment.
• Provides effective-date treatment for taxable years ending after enactment.