Earlier, under the Heroes Earned Retirement Opportunities (HERO) Act, signed into law on Memorial Day, taxpayers could count tax-free combat pay when determining whether they qualify to contribute to retirement savings plans. Before this change, members of the military whose earnings came entirely from tax-free combat pay were generally barred from using IRAs (retirement savings plans) to save for retirement.Hero Act put in simple words means that the IRS (Internal Revenue Service) taxes one category of tax payers to provide exemptions to others. In this case, tax income for regular taxpayers was used to give members of military, whose earnings came entirely from tax-free combat pay, an opportunity to use IRA to save for retirement.
In the context of the HEART Act (Heroes Earnings Assistance and Relief Tax), the proceeds of the tax are used to provide assistance and buffer the revenue loss occurring from exemptions provided to members of the military. The names chosen for such tax laws ensure that the ones not complying have a feeling of guilt and a feeling of treason. This works quite conveniently on the lines of Behavioral Finance that plays on human psychology of Finance.
IRS taxes all US Citizens and Green Card Holders based on worldwide income. This means that as long as you maintain a US citizenship or hold a Green Card, your income in any part of the world is subject to US Federal Taxes. In order to curb people who have high income, from giving away their citizenship in order to avoid getting taxed, the IRA taxed them assuming sale of all their assets over a 10 year period after they withdrew their citizenship. After the HEART Act, such individuals will be taxed in one huge lump sum rather than over a 10 year period, assuming sale of all their assets. This will make it even more difficult to avoid taxes by withdrawing citizenship. The large amount of tax will act as a deterrent and thus High Net Worth individuals will likely not give up their US citizenships or Green Cards.
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