Heroes Earnings Assistance and Relief Tax Act of 2008 signed by Bush

Attention military personnel and employers: In June, President Bush signed the Heroes Earnings Assistance and Relief Tax Act of 2008, which contains tax benefits for service members and others.

Here's an overview of some changes:

• Economic stimulus payments. The Economic Stimulus Act, passed earlier in the year, required both you and your spouse to have valid social security numbers in order to receive a check from the government.
  
  Under the new law, you'll be eligible for the stimulus payment if either of you has a valid social security number, as long as you or your spouse are active or reserve military and you file a joint tax return.

• Earned income credit. The earned income credit, which can reduce your tax and possibly result in a refund even if you owe no tax, is based on total wages and similar income. Prior tax law provided a temporary benefit that let you elect to include tax-free combat pay in the calculation of the earned income credit.
  
  The new law makes the benefit permanent.

• Penalty-free retirement plan distributions. Amounts you take from your IRA, 401(k) or certain other qualified plans before retirement are generally subject to a 10% early withdrawal tax. However, a temporary special rule allowed an exception to the penalty if you're a military reservist and you're called to active duty for more than 179 days.
  
  That rule is now permanent.

• Access to flexible spending arrangements. When you participate in an employee benefit plan that lets you make pre-tax contributions for medical and other expenses, you're typically required to use the money in your account within a certain time period. If you don't, you forfeit the balance, under what's commonly called the "use it or lose it" rule.
  
  Now, if you're a military reservist called to active duty after June 17, 2008, for at least 180 days, you're exempt from the use it or lose it rule.

The Act also made additional changes to retirement plans, created a credit for small employers who pay differential wages, and established new rules for expatriates. Contact us for details on these and other provisions.