House Bill Extends Benefits Breaks to Active Reservists

May 21, 2008 ( - Several provisions of a bill passed unanimously by the U.S. House of Representatives - including one allowing penalty-free withdrawals from a flexible spending account - affect workplace benefits for armed services members.

The bill (H.R. 6081),   the Heroes Earnings Assistance and Relief Tax (HEART) Act of 2008, gives a series of tax breaks and other economic incentives to U.S. Armed Services members. Representative Charles B. Rangel (D-New York) was the sponsor of the measure that passed 403 to 0.

According to a Rangel news release, the bill would:

  • Make permanent the expiring Internal Revenue Code provision that allows active duty reservists to make penalty-free withdrawals from retirement plans;
  • Modify the Uniformed Services Employment and Re-employment Rights Act (USERRA) to allow the day prior to the date of death to be treated as the date the employee returned to work for purposes of triggering payment of benefits under a qualified plan;
  • Permit an employer to make certain contributions to a qualified pension plan on behalf of an employee who is killed or becomes disabled in combat;
  • Permit members of the reserves called to active duty for at least six months to withdraw funds held in a Flexible Spending Account (FSA) without penalty.
  • Permit recipients of military death benefit gratuities to roll over the amounts received, tax-free, to a Roth IRA or an Education Savings Account; and
  • Clarify that active military who file a joint tax return would be eligible for the stimulus rebate payment even if the spouse does not have a Social Security number.

A Business Insurance news report said potential of forfeiture of unused FSA balances occurs when employees are called up for military service. That can happen because the individuals and their families typically give up their employer coverage—including their FSA—and enroll in TriCare, a Department of Defense health care program that has very low cost-sharing requirements, Business Insurance said.

More information about the bill is available  here .