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Dear Doug Collins

The Widow's Tax: The SBP–DIC Offset, and the Widows Who Repealed It

The Survivor Benefit Plan was sold to generations of military retirees as insurance: pay premiums out of your retired pay, month after month, and if you die first, your spouse will keep receiving an annuity of up to 55 percent of the base amount you elected. What the sales pitch did not say was that if the service itself caused the death — if the retiree died of a service-connected injury or disease, or was killed on active duty — the annuity would be cut by the amount of the other survivor benefit, the VA's Dependency and Indemnity Compensation, dollar for dollar. For many widows and widowers the cut was total: the DIC equaled or exceeded the SBP, the annuity their spouse had paid for vanished, and all that came back was a refund of premiums. Survivors named the rule for what it felt like — the "widow's tax." This page is the record of that offset, of the roughly 65,000 spouses it touched, and of the surviving spouses — Kathy Prout of California foremost among them — who organized, walked the halls of Congress for years, and finally repealed it, prospectively only, in 2019.

The service and the promise

Congress enacted the Survivor Benefit Plan in 1972, replacing an earlier plan whose survivor protection the armed services committees had found, in the Congressional Research Service’s summary of the 1971 hearings, “incomplete, inadequate, or nonexistent.” The promise written into the new plan was stated in the Defense Department’s own formulation, quoted by CRS: to ensure that the surviving dependents of military personnel who die in retirement or after becoming eligible for retirement “will continue to have a reasonable level of income.” A retiree elects coverage at retirement, choosing a base amount up to full retired pay; the annuity to the survivor is 55 percent of that base. The retiree pays for the election — under the modern flat-rate formula, premiums of 6.5 percent of the elected base amount are withheld from retired pay — and the government shares the cost. Coverage for those who die on active service was added and later expanded. By the end of fiscal year 2018, CRS records, some 273,596 survivors were receiving SBP payments, and about 1.1 million retirees were enrolled.

Dependency and Indemnity Compensation is a different promise, made by a different agency for a different reason. DIC is paid by the Department of Veterans Affairs, at no cost to the service member, to the survivors of a member who died in the line of duty or of a veteran who died of a service-connected injury or disease. It is tax-free, where the SBP annuity is taxable. In the advocates’ formulation — stated to Congress for decades and quoted by CRS from the Non Commissioned Officers Association — the two payments answer two different losses: “SBP is insurance purchased by the retiree from his or her employer, the DOD, and is intended to preserve a portion of service-earned retired pay for the survivor upon the retiree’s death for any reason. DIC is a special indemnity compensation paid to the survivor by the VA when a member’s service has caused his or her premature death.”

The offset was not an accident discovered later; it was built into the design. In the early 1970s debates, CRS records, lawmakers deliberately integrated SBP with Social Security and VA benefits, intending SBP to provide full coverage where no other federal benefit was payable and supplemental coverage where those benefits fell short. Defenders of the arrangement in later years pointed to the long-standing rule against receiving two federal benefits for the same event, noted that the government both pays the full cost of DIC and subsidizes SBP, and noted that offset spouses received refunds of premiums. That was the institution’s case. The survivors’ case was simpler: they had paid for one of the two benefits, and the government kept it anyway — precisely where the death was the government’s own doing.

What happened

The mechanics were mechanical, and CRS states them plainly. Before the FY2020 NDAA, when a surviving spouse was entitled to both SBP and DIC, the law required the SBP benefit to be reduced, dollar for dollar, by the amount of the DIC. If DIC was smaller than SBP, the spouse received the reduced SBP plus DIC — a combined total no larger than the unreduced SBP alone, as if DIC did not exist. If DIC equaled or exceeded the SBP, no SBP was payable at all: the spouse received only the DIC, and, in lieu of the annuity, a refund of the deceased retiree’s SBP premiums based on the amount of the offset. The DIC itself was never reduced. Only the purchased benefit was.

The scale was counted repeatedly, and the counts moved with the year and the counter, which is worth stating rather than smoothing over. Military Times put the affected population at about 63,000 families in 2017. TAPS and the Senate sponsors of repeal said more than 65,000 in 2019; Senator Susan Collins, closing the fight that December, said as many as 67,000; TAPS’s 2023 account of the completed repeal said as many as 66,000. The average loss was the figure every source converged on: about $925 a month, about $11,000 a year, per affected spouse — in some tellings, up to about $12,000 a year. Multiplied across a widowhood, it was a house, a retirement, a margin planned on and paid for.

Kathy Prout learned the rule the way most spouses did: at the worst moment of her life, from a casualty assistance officer, with no adequate explanation attached. Her husband, Rear Admiral James “Jay” Prout III, commander of the USS Carl Vinson carrier battle group, died on May 17, 1995, when the F/A-18 Hornet he was riding in crashed in the mountains of New Mexico; he left behind his wife and three children. MOAA, which later gave Prout its Distinguished Service Award for this fight, records what followed: she learned the SBP would be reduced dollar for dollar by her DIC, that her “income was reduced by almost 80% from active duty pay,” and that nobody — not the casualty assistance officer, not her husband’s friends — could explain why. “I knew it would be difficult to live on this with three children, but I could do it,” she told MOAA. “What about lower-ranking surviving spouses? How could they live on so much less? I knew this was wrong. I thought it was a policy that could be easily fixed. I found out the law had to be changed. That was daunting.”

The arithmetic landed on younger widows with the same indifference. MOAA’s 2019 account of three survivors’ stories records Nancy Mullen, whose husband, Army Warrant Officer Sean Mullen, was killed in action in Afghanistan on June 2, 2013, on his sixth deployment, after eighteen and a half years of service: the offset meant she would receive just 26 percent of the income her husband had provided the household before he was killed. “He paid plenty,” she said. “Our country can do better.” Other spouses worked around the rule at a price the rule’s defenders rarely counted: from 2003, a surviving spouse could elect to transfer the SBP annuity to a child, because a child’s SBP was not offset by DIC — a workaround that paid the family while the children were minors and then stopped, and that in 2019 collided with the tax code’s treatment of children’s unearned income. The choice the offset forced was between the widow’s annuity and the children’s, and it had to be made in grief, quickly, by people who had often just learned the offset existed.

What the institution did afterward

For most of the offset’s life, Congress’s answer was a partial patch with its own name. Section 644 of the FY2008 National Defense Authorization Act established the Special Survivor Indemnity Allowance, SSIA, effective October 1, 2008: a small monthly payment to spouses whose SBP was offset, meant, in CRS’s words, “to partially compensate for that reduction.” It began at $50 a month in fiscal 2009 and rose by statute over the years — $100 by 2014, then $150, $200, $275, and $310, made permanent by Section 621 of the FY2018 NDAA and cost-of-living adjusted thereafter, reaching $323 a month in 2020 and $327 in 2021. It was never permitted to exceed the amount of the offset itself, and against an average loss of about $925 a month it replaced, at its best, roughly a third. The institution had, in its own statute, conceded the reduction was a harm worth compensating — and then compensated a fraction of it for another fifteen years.

Full repeal bills were introduced Congress after Congress and died, in the main, on cost and on the requirement to find offsetting savings. The Congressional Budget Office estimated in 2009 that eliminating the offset would cost $7.0 billion over ten years; when repeal finally passed, CBO’s December 2019 estimate for the phased repeal was $4.68 billion in added direct spending over fiscal 2020–2029. Senator Collins, who carried the Senate bill with Senator Doug Jones, said on the floor that repeal legislation had been adopted by the Senate numerous times over nearly two decades, always by overwhelming margins, “only to be later stripped out in the conference process.” Support, in other words, was never the missing ingredient. The missing ingredient was a Congress willing to pay for what it kept voting for.

What changed was organization, and the organization was built by the widows themselves. Edie Smith, who learned of the offset after her husband’s death in 1998, worked with MOAA from the beginning and, MOAA records, secured the first repeal legislation in 2001. Prout became the surviving-spouse liaison for her MOAA chapter, served on MOAA’s Surviving Spouse Advisory Committee, and pressed the association to make repeal a legislative priority. “When she convinced MOAA to make it a legislative priority, ‘it was a game-changer,’” MOAA wrote. In 2013, MOAA included the SBP–DIC offset in its annual advocacy event on the Hill for the first time. That same year, Prout started two Facebook groups for surviving spouses — necessary, she explained, because privacy laws meant survivors could not find each other: “Congress needed to hear from those who were impacted. We created letters to send, guidelines, statistics, what to say in a phone call, and we walked the halls of Congress.” MOAA’s two accounts of her travel give the scale in two ways: more than 100 trips to Washington in all, and, living in California, walking the halls of Congress 18 times a year. In 2017 she was invited to the White House to meet Vice President Mike Pence. Around the widows stood the coalition — MOAA, TAPS, the VFW, the National Military Family Association, Gold Star Wives of America — with TAPS, by its own account, instrumental in working the repeal through Congress alongside the survivors, and the VFW convening the service organizations and widows in a May 2019 roundtable to run the final campaign as one.

The endgame came in 2019. In the House, Representatives Joe Wilson and John Yarmuth carried H.R. 553, the Military Surviving Spouses Equity Act; MOAA counted 312 House cosponsors by midsummer, and Prout’s MOAA profile records that the bill finished with more cosponsors than any bill in the 116th Congress. In the Senate, Senators Jones, Collins, Jon Tester, and Mike Crapo carried S. 662; Senator Collins records a record-high 78 Senate cosponsors. In June 2019, Jones’s request to pass the repeal by unanimous consent was blocked, and he took to the floor — in remarks preserved on video below — to say the Senate had “turned our backs for over 40 years on military families.” In September, the Senate voted 94–0 on Jones’s motion to instruct its conferees to keep repeal in the final defense bill. This time it survived conference. On December 20, 2019, Section 622 of the National Defense Authorization Act for Fiscal Year 2020 — Public Law 116-92, titled “Phase-Out of Reduction of SBP Survivor Annuities by Amount of Dependency and Indemnity Compensation” — was signed into law, with Smith and Wilson watching, in a packed airplane hangar at Joint Base Andrews.

Where it stands now

The repeal was phased, not immediate, and the schedule is the statute’s own. Through 2020, nothing changed: the offset applied in full. For calendar 2021, SBP could be reduced by no more than two-thirds of DIC — the first increase arriving in the payment of February 1, 2021. For 2022, the cap fell to one-third. On January 1, 2023, the offset was eliminated entirely, and on February 1, 2023, DFAS paid the first full annuity: eligible surviving spouses now receive their full SBP payment from the Department of Defense and their full DIC payment from the VA, concurrently, as TAPS announced that day. No application was required; DFAS recalculated the affected annuities automatically. The SSIA ended with the offset it had patched — DFAS records that it was not paid after the January 3, 2023 payment, because SSIA was payable only to spouses whose SBP was offset. The same statute repealed the child-transfer workaround going forward and restored annuity eligibility, effective with the 2023 change, to eligible spouses who had transferred SBP to their children after an active-duty death; and it protected the old premium refunds — no spouse who received one has to pay it back.

What the repeal did not do is written into it just as clearly. Section 622 does not authorize back payments, and CRS states the point without ornament: “there will be no retroactive benefits paid to survivors.” The decades of offset amounts — in many households, six figures of annuity the retiree had paid premiums to buy — are not repaid, and Prout said so herself as the bill moved: she and the other survivors “will not be able to recover funds that have been lost to date.” Spouses who died before 2023 never saw the benefit their husbands’ and wives’ premiums purchased. Nor did repeal reopen elections made under the old arithmetic: DFAS’s published guidance states that Section 622 does not reinstate SBP for retirees who declined or reduced coverage at retirement — a decision many couples made precisely because the offset made the coverage look worthless — and does not restore enrollment for those who withdrew. The remarriage rules were untouched: a surviving spouse who remarries before age 55 remains ineligible to continue receiving SBP. The account, in short, was closed going forward. It was never settled backward.

The ledger

The accounting, in three lines — what the record shows has been done, what it shows has not, and what is still being sought.

What has been done

What has not been done

What is being sought

The record, on video

The repeal was argued in public, in the survivors’ own voices and their champions’, across 2019 and after. Five films: MOAA’s explainer built around the widows themselves; Senator Jones on the Senate floor after his repeal request was blocked; MOAA’s president appealing to the NDAA conferees; the Capitol reception after the law was signed, with Edie Smith, who started in 2001, saying “we did it”; and MOAA’s retrospective on why the long game was the game.

The tax, explained by the taxed. MOAA's 2019 film on the offset — surviving spouses describe paying for an annuity the law would not let them collect, the explainer MOAA's chapters sent to Congress throughout the repeal campaign. (The Military Officers Association of America.)

The blocked vote. Senator Doug Jones, the Senate repeal bill's lead sponsor, on the floor and to reporters in June 2019 after his request to pass the Military Widow's Tax Elimination Act was refused a vote despite 75 cosponsors: "we have turned our backs for over 40 years on military families." (WBRC 6 News.)

The appeal to the conferees. Lt. Gen. Dana Atkins, USAF (Ret.), MOAA's president, addresses the NDAA conference committee in September 2019 — the stage at which repeal had been stripped out in Congress after Congress — and asks it to end the injustice in the final bill. (The Military Officers Association of America.)

We did it. Edie Smith — who began this fight in 2001 — and Representative Joe Wilson speak at the February 2020 Capitol reception celebrating the repeal, months after Smith watched the NDAA signed at Joint Base Andrews. (The Military Officers Association of America.)

The long game. MOAA's 2024 advocacy retrospective uses the widows-tax repeal as its case study in why an association keeps carrying bills that appear to have little chance — because a new Congress, and a carrier who will not stop, can change the odds. (The Military Officers Association of America.)

Sources

Part of Betrayed, Not Forgotten — this site's accounting for the service members and veterans their own institutions failed. Videos are embedded from their publishers; nothing here is re-hosted.