WASHINGTON — Kaanan Fulger was shocked when she saw the taxes her four kids would have to pay this year on the survivor benefits they have received since their father, a Marine, died in 2010 at the age of 33.
Due to a quirk in the Tax Cuts and Jobs Act that was championed by President Donald Trump and Republicans in Congress, Fulger’s children would have to hand over to the government 24% of the modest $4,000 benefit they received for the year.
“They’re given this money because their dad died and the government is like, ‘Here I’ll keep a quarter of that,’” she said. “I just want my kids’ benefits protected.”
The dedication ceremony for the Louisiana Gold Star families memorial included Governor John Bel Edwards Gold Star families veterans and servi…
The Denham Springs family is among thousands of Gold Star Families — survivors of members of the military who died while the country was at conflict — caught in an inadvertent effect of the federal tax overhaul.
Now several Louisiana officials are leading efforts to try to correct the issue. The U.S. Senate on Tuesday passed, without objection, bipartisan legislation proposed by U.S. Sen. Bill Cassidy, R-Baton Rouge, and cosponsored by U.S. Sen. John Kennedy, R-Madisonville.
“It is one step closer to helping those who lost a mom or a dad serving in the military to protect our freedom,” Cassidy said after the bill’s passage. “The Tax Cut and Jobs Act has helped millions. This legislation improves the law so that those Americans whose families have sacrificed the most benefit even more.”
The House, where tax changes must originate, has several proposed bills that would take the place of the Senate-approved measure once they pass the lower chamber — effectively expediting the correction. But it’s unclear when a companion bill may come up.
U.S. House Minority Whip Steve Scalise, R-Jefferson, said in a recent interview with The Advocate that he has heard from several constituents worried about the change and that legislation to fix it is a priority for House Republicans.
Gov. John Bel Edwards, a Democrat and Army veteran, also has heard about the issue. He sent a letter to the Louisiana delegation urging them to expedite legislation to address it.
"This sudden financial blow is a cruel and painful burden to place on military families who have already paid the ultimate sacrifice," Edwards wrote in the letter.
U.S. Rep. Ralph Abraham, an Alto Republican who is currently running against Edwards in this fall's governor's race, accused the incumbent governor of politicizing the issue.
"Gov. Edwards' letter is a transparent attempt to use Gold Star families to take a shot at President Trump over his signature tax reforms because any amount of research would have shown the governor that efforts are well underway to resolve the benefits issues concerning certain Gold Star families," he said at the time. "My suggestion would be for Gov. Edwards to write his fellow Democrat, Speaker Nancy Pelosi, and encourage her to take up this bill since she is the one who controls the floor schedule."
The federal tax overhaul put Gold Star children who receive benefits into the higher so-called “Kiddie Tax” bracket normally reserved for trust funds — in some cases effectively doubling the amount of taxes they owe.
“I just wasn’t expecting a 24% tax rate on my kids’ very small benefit,” said Fulger, who has since remarried, which led to the transfer of benefits to her children. “They’re getting taxed at this rate, and it’s just absurd to me.”
And some are paying up to 37%. If it's not addressed in Congress, then the impact could hit even harder for the 10-year-old youngest daughter of Fulger and her late husband, Army Staff Sergeant Matthew Mackey, who had also served as a Marine. That's because of the nature of survivor benefits and how they are passed down to younger siblings when a child ages out.
According to the most recent Department of Defense statistics available, about 4,500 people in Louisiana receive survivor benefits. It’s unclear how many of them have been hit by the “Kiddie Tax” loophole.
Candace Wheeler, senior policy adviser for the Tragedy Assistance Program for Survivors, said most families only learned about the issue when, like Fulger, they went to file their taxes this year.
“It did catch everyone off guard,” she said. “For some it was a rather big bill — nothing they were expecting.”
Wheeler said that the issue has highlighted another problem in how survivor benefits are taxed, dubbed the “widow tax.”
The dollar-for-dollar offset between two separate survivor payout programs is one of the things that has prompted more widows to transfer benefits to their children, which has landed them in the new "kiddie tax" realm.
Wheeler said the point of the survivors programs is to “help the families that have sacrificed greatly.”
“There’s a great deal of momentum to fix the overall problem," she said.
Simply solving the "widow tax" might not help families like Fulger's, since she transferred the benefits because she was getting remarried.
“I understand it was an unintentional part of what they were trying to do, but unfortunately we fell in the hole," Fulger said.
Editor's note: This article has been updated to correct the military branch that Fulger's late husband was serving under at the time of his death.