Financial Frontlines®

The Federal Trade Commission web site has a special page for military members on how to reduce your odds of becoming a victim of ID theft. It tells you how to place an Active Duty Alert on your credit report, provides information resources, and what actions to take if you’ve been ripped off. Nice job by the FTC. See the page here.

Late(r) Breaking News:

Friday, June 12, 2009

The OSD tax person advised today that they have a “fix” that will make HAP benefits in the PCS category non-taxable.  The fix is under review by OMB; OSD hopes to attach the provision to a bill later this year.  So for now, HAP benefits are taxable, but if the proposed measure passes Congress, the PCS HAP category could become tax exempt .

June 11, 2009

We just found out some of the financial assistance for members under the Homeowners Assistance Program is taxable for some applicant categories. The PCS category is one of the taxable categories and we are determining whether the other categories are affected.

This is a surprise to us as we believed the benefit to be excluded as income as was HAP program payments prior to this recent expansion of the program.  See IRS Publication 3, page 4.

We are researching this issue and will report back as soon as we can get a source and a decision. In the meantime, if you apply for the HAP, ask about the tax status of your possible benefit. It could be that your $100,000 HAP payment could go down as income when you file your taxes for 2009.

NEWS FLASH…see my comments in the comments section for 13 Nov. Legislation was passed that gives military members a break on the 3-year live-in rule.

We have received a few calls and emails about this tax credit. The issue is how it effects a military member who can’t live in the house for three years to qualify for the credit.

This credit applies to homes bought in 2009. The credit can be for up to $8000. A “first-time” home buyer is someone who hasn’t owned a home as a primary residence for 3 years prior to the 2009 home purchase. Under the law, if you don’t live in the house for 3 years as your “primary residence” after using the credit, you pay back the full amount of the credit when you file annual income taxes for the year you moved out–even if you rent the place. The term “primary residence” is key. This is one of the provisions of the 2009 Stimulus bill that was passed in February and was under the tax code changes.

Members have stated the 3 year requirement shouldn’t apply to military members and there should be a military exemption. You need to look at the 3 year requirement as the price you pay to get the credit. It’s no different than getting the tax benefits of a retirement account but it costs you having to wait until you are 59 1/2 years old to earn the benefit.

MOAA does not see an opportunity to work on a military exemption to this law. Instead, our focus is on educating members about the risk assumed by using the credit. This is one more risk factor that must be considered by military members when buying a home. Buyer beware.

Even if the inflation rate is in negative territory this year, Social Security income will remain stable but…it is possible some of you will have less Social Security income in your pockets.

This can occur if you are new to Medicare in 2010 or if you are in the upper income groups of Medicare Part B and D premium rates. Part D probably won’t be a factor for most since military retirees don’t tend to have Part D.

New Medicare enrollees pay the rates in effect at enrollment. If you enroll after a rate increase, you pay the higher amount. The result is your Social Security income remains stable from 2009 to 2010 but you pay higher Medicare premiums than the 2009 people did.

Part B premiums are due to increase for the upper income groups. With no COLA increase expected for Social Security and a Part B premium increase for upper income groups, your Social Security take-home pay will be less than last year. The upper income group is defined as those with incomes above $85k for singles and $170k for couples.

Starting with the 1 June 2009 retirement checks, Voluntary Separation Incentive (VSI), Special Separation Benefit (SSB) and other separation payment deductions will stop for the foreseeable future. The suspension is not a permanent situation. It will stay in effect pending policy and legal reviews at DOD.

These were separation payments made to military members during force draw-down periods. The separated members were required to maintain duty in the Ready Reserves after separation. Those members who went on to retire from the Reserves had to pay back the separation pay upon receipt of retirement pay.

The suspension is part of a financial relief plan during the economic downturn. It also allows the DOD to review legal issues in regards to repayment options.

There are legislative initiatives underway that may change separation pay recoupment efforts in the future. Not that the separation pay repayment will be forgiven or permanently suspended but the repayment formula may change to something less drastic than under the current legal formulas.

A letter from DFAS will be sent to all members affected by the suspension. See this link for a copy of the letter.