Reduction of Survivor Benefit Plan (SBP) annuities will be completely phased out by January 2023

In December of 2019, Congress passed an appropriations bill repealing the DIC offset, also known as the “Widow’s Tax.” The Widow’s Tax prevented eligible surviving spouses from receiving full monthly entitlements of both SBP and the DIC benefit.

In the past, SBP payments were reduced by the amount of DIC received by the spouse, referred to as an offset. Survivors subjected to this offset were also granted Special Survivor’s Indemnity Allowance (SSIA), a taxable benefit intended to restore part of the monthly payment that was not paid due to the offset. Survivors of active duty deaths may have made the choice to transfer their entitlement to eligible children to avoid the offset and retain some benefit for the family.

The offset of SBP payments will be slowly phased out starting in January 2021, which means survivors will see this change reflected in their February 2021 payment. The first phase restores one-third of the offset amount. In January 2022, two-thirds of the offset amount will be restored. The phase out will be completed in January 2023, when the final third of the offset amount is restored. Once the phase out is complete, the SSIA benefit will be discontinued.

Key Points:

  • This is not an increase in SBP payment amounts but rather a restoration of payments that were previously legally offset.
  • These payments are not retroactive, so survivors will not be repaid any amounts that were previously offset by their DIC benefit. Survivors who received a refund of premiums paid, however, will not be required to repay it.
  • This phase out will apply to new applications for benefits and entitlements as well. SBP spouse survivors who are eligible for DIC and apply to start their SBP annuity in 2021 onward will also see the phased restoration of their SBP entitlements.

Those survivors of active duty deaths who made the choice to transfer their entitlement will have that entitlement automatically restored to them in 2023. This is a mandatory change and survivors do not have to take any action to ensure restoration. This restoration rule will not affect the elections made by retirees who pass away after discharge.

What amount should you expect in February?

In December 2020, spouse SBP annuitants who are also receiving DIC payments from the U.S. Department of Veterans Affairs should have received a letter from Defense Finance and Accounting Service (DFAS) that listed estimates for their individual payments in the coming year.

Letters include the following estimates for 2021 (including a 1.3% cost-of-living adjustment):

  • Gross SBP annuity estimate
  • DIC offset amount, or the amount of DIC that will be deducted from the gross SBP annuity estimate
  • Pre-tax estimate of the SBP annuity payment after DIC offset
  • Estimate of the SSIA payment

For more information on this offset reduction phase out, DFAS has provided a page on their website that will host updates. DFAS also provides an FAQ section to provide more in-depth information. You may also contact the Navy Mutual education team via email at education@navymutual.org or by calling 888-298-4442.