Press Contacts

Groen, Kluka & Company, P.C.
Certified Public Accountants & Management Consultants
888 West Big Beaver Road, Suite 790
Troy, MI 48084

Kevin Delaere
Groen, Kluka & Company, P.C.
888 West Big Beaver Road, Suite 790
Troy, MI 48084
Phone: 248.362.5000
Fax: 248.362-0999
http://www.groenkluka.com

On May 20, 2008, Congress passed H.R. 6081, the Heroes Earnings Assistance and Relief Tax Act (the HEART or Heroes Act), which was signed by President Bush on June 17, 2008.

• Modifies Economic Stimulus Act requirement for valid Social Security numbers to receive economic stimulus payments : The Act provides that the identification number requirement does not apply in the case of a joint return where at least one spouse is a member of the U.S. Armed Forces at any time during the taxable year. This allows members of the military with a spouse who does not have a Social Security number to qualify for economic stimulus payments. This provision is effective as if it were included in the Economic Stimulus Act of 2008.

• Permanently extends the election for members of the military to include combat pay as income for the purposes of the earned income tax credit : This provision is effective for taxable years beginning after December 31, 2007.

• Revises the tax treatment of differential pay: Some employers voluntarily continue paying compensation to service members during their active duty. Prior to the Act, such differential pay wasn't considered wages for federal income tax withholding purposes or for certain retirement plan purposes (although the latter was permitted). Under the Act, differential pay: is subject to Federal income tax withholding (for wages paid after 2008), and must be treated as compensation for retirement plan purposes (for years beginning after 2008).

• Creates a new tax credit for eligible small business employers that pay differential wages : The credit is equal to 20% of up to $20,000 of differential pay to each qualifying employee during the tax year, but only for payments after the enactment date and before 2010.

• Treats state and local payments to service members as excluded qualified military benefits : Prior to the Act, there was no income exclusion for a state bonus payment made to a uniformed service member who served in a combat zone. Effective for payments made before, on, or after the enactment date, the term "qualified military benefit" includes any bonus payment made by a state or political subdivision to any member or former member of the U.S. uniformed services, or to his dependent, only by reason of the member's service in a combat zone.

• Gives reservists extra flexibility to make health flexible spending arrangement (FSA) payouts : Reservists called to active duty can access unused funds from their employer's FSA without penalty. Funds can be used for any purpose. This provision is effective after the date of enactment.

• Permanently extends the rules relating to qualified reservist distributions : The PPA allowed reservists called to active duty to make penalty-free withdrawals from certain retirement plans. The PPA's provision expired December 31, 2007. The Act makes this provision permanent.

• Allows contributions of military death benefits to Roth IRAs and Coverdell education savings accounts : Individuals receiving military death benefits can disregard the contribution limitations relating to Roth IRAs and Coverdell ESAs. The provision is generally effective for payments made on account of deaths from injuries occurring on or after the date of enactment.

The Act also modifies the qualified bond mortgage rules for veterans, and includes other miscellaneous provisions.