Bad News for Cayman Island "Vacationers" 

 
As Americans are beginning to cash their one-time economic stimulus checks this summer, Congress has also passed legislation that creates special permanent tax relief for military families.

The bipartisan Heroes Earnings Assistance and Relief Tax Act (HEART Act), signed by the President in June, requires that combat pay be treated as earned income for purposes of the Earned Income Tax Credit (EITC).  

“This bill is called the HEART Act, but I would prefer to call it the thank you bill – thank you to the tens of thousands of American men and women who have responded to America’s call to fight this war and place themselves in harm’s way to serve this nation,” said Chairman Charles B. Rangel (D-NY), chief sponsor of the HEART Act. 

Rangel's words may be warm and fuzzy, but the reality, he contends, is that many soldiers’ families working to enter the middle class are routinely denied needed tax relief if combat pay is not counted for purposes of receiving the EITC. The legislation also ensures military families receive recovery rebate checks that were approved by Congress as part of the stimulus package.

The bill also clarifies that a military service member on active duty, who files a joint return, is eligible for a recovery rebate, even if his or her spouse does not have a Social Security number. This measure appears to preempt sore spots like the one that arose after the first round of stimulus check legislation was passed; immigration restrictionists demanded clarification loopholes that would allow money to go to undocumented immigrants who pay taxes.  Yet, no House Republican — including the notorious hardliner and former Presidential contender Tom Tancredo (R-CO) — opposed the HEART Act. 

In addition, the legislation will help ensure that reservists who are called up for active duty do not suffer a pay cut. A recent Department of Defense survey found that 55 percent of married Guard members and reservists suffer a loss of income when being called to active duty.  In response, the HEART Act provides a tax credit of up to $4,000 for small businesses who continue to pay their National Guard and Reserve employees when they are called to active duty.

According to Rangel, the bill will not add to the deficit, but rather close a tax loophole that has allowed government contractors to "set up sham companies in foreign jurisdictions" to avoid paying Social Security and Medicare taxes. Moreover, it will strengthen existing law to ensure that high net-worth taxpayers cannot renounce their U.S. citizenship or terminate their U.S. residence in order to avoid U.S. taxes.