Washington (CNN) In early March 2006, two days after learning her husband had died in Iraq, Malia Fry was sitting at her kitchen table in North Carolina. She was flipping through a three-ring binder with a casualty assistance officer who was shepherding her through the long list of decisions she had to make in the fog of grief.

Gunnery Sgt. John Fry was an explosive ordnance disposal technician in the Marines. He had been disarming an improvised explosive device in Anbar Province when it exploded.

Malia turned the pages, picking out her husband's casket. Her two youngest children, Gideon, then 7, and C.L., just 2, played in the next room. Her daughter, Kathryn, was at the beach with another Marine family, a much-needed escape from the reality that had settled over the Fry house. Kathryn was 9 years old and understood best that her dad was not coming home.

"Five [caskets] were metal and two were wood. Why I remember that, I don't know," Malia says, 13 years later. "You remember the weirdest things."

John Fry had been a woodworker. Malia chose a wood casket. And then the casualty assistance officer -- a Marine staff sergeant who had worked with John Fry -- flipped through the binder to the next decision Malia needed to make: how to structure her monthly survivor benefits.

Marine Gunnery Sgt. John David Fry was killed in 2006 in Iraq by an improvised explosive blast.

She reviewed one from the Veterans Affairs Administration called Dependency and Indemnity Compensation, a benefit for family of service members who die in the line of duty or due to a service-related injury or illness. As the name implies, it compensates dependents for the loss of income of their fallen military member and renders the federal government not liable for the deaths of US troops.

There was also the Survivor Benefit Plan, paid out by the Department of Defense. It's the military's version of a life insurance policy. Whether the military member is killed in action or they retire and continue to pay into the benefit, the SBP guarantees part of their retirement pay as a modest monthly income for a spouse who may outlive them.

"One he paid for with his work every day and the other he paid for with blood," Malia, who was 28 when her husband died, says.

She was stunned when she learned she would not receive both benefits in full.

For every dollar she received from the VA benefit, her casualty assistance officer told her, it would be deducted from the Survivor Benefit Plan payments, an offset referred to as "the widow's tax."

It affects an estimated 65,000 Americans whose service member spouses died as a result of their service in conflicts dating back to World War II.

The Fry family before John's death.

Malia could avoid the offset by transferring the SBP to her children. That meant instead of receiving the monthly payments for the rest of her life, they would end when the Fry children turned 18 or, if they went to college, 22. But it took care of her immediate financial worries.

"The Marine helping me told me if I put [the Survivor Benefit Plan] in my name I would only collect $120 a month. And I thought, 'how am I going to feed my kids?'" Malia recalls.

The "child option," as it's called, channels an average of $925 per month from Gold Star spouses to Gold Star children. But it's a less than perfect work-around -- often referred to by advocates as a band-aid. In military families, the service member is frequently the breadwinner. Constant moves make steady employment a challenge for non-military spouses. And in the immediate years after losing a service member spouse the SBP provides some financial stability to families.

An expensive surprise

But earlier this year when Gold Star children filed their taxes -- they file individually because the benefits transferred to them count as income and render them no longer dependents of the surviving spouse -- an expensive surprise was awaiting them.

The tax reform bill passed by Congress in 2017 and signed into law by President Donald Trump hit them with a huge tax hike.

In what's become known as "the kiddie tax," the United States government inadvertently applied the tax meant to collect revenue on inheritances and trust funds to several thousand children who had lost their mom or dad to war or service-related injuries or illness.

"It's a lot to go from 12 to 13%, to 37%," Malia told CNN Home Front. "Normally we paid around $100 to $150, each child. This last tax season we paid close to $1,000 each child."

Republicans controlled both the House and Senate two years ago, passing the tax overhaul along party lines. Democrats now lead the House. But when members of Congress found out what had happened this year, whether or not they voted for the legislation, they uniformly vowed to change the mistake.

But Memorial Day came and went, and the full Congress had failed to send a fix to the President's desk.

Congress returned to Washington from summer recess in early September. Trump and first lady Melania Trump honored the families of fallen troops at the White House a few weeks later on Gold Star Mother's and Family's Day. Still, no bills from Congress.

And now, with Veterans Day quickly approaching, the immediate financial future of Gold Star families is uncertain.

The Senate moved a standalone bill to fix the "kiddie tax" in May but the House of Representatives, where tax bills are supposed to start, rolled the fix into a larger retirement savings bill. Both bills passed with overwhelming bipartisan majorities, but the House retirement bill is stalled in the Senate where Sen. Ted Cruz, R-Texas, has put a hold on it because it does not include a tax benefit for home schooling.

Congress is dealing with the overarching problem, the "widow's tax," separately. The House eliminated it in the National Defense Authorization Act, a bill that funds the entire Department of Defense. But it hit a wall in the Senate, literally. House Democrats had blocked defense budget funds from being diverted to fund Trump's border wall, putting them at odds with Senate Republicans and the White House.

Sens. Doug Jones, D-Alabama, and Susan Collins, R-Maine, have spearheaded a standalone bill In their chamber as well as a 94-0 vote on the Senate floor, instructing the Senate to include the "widow's tax" repeal in the defense funding bill.

One of the big obstacles to fixing the "widow's tax" has been the price tag. The Congressional Budget Office calculates getting rid of it would cost $5.7 billion over 10 years. And it is mandatory that Congress cut something else to pay for it.

Advocates say that is a problem for Congress to solve, not for Gold Star families to bear.

"Taking care of our widows and their families is the nation's obligation," says Candace Wheeler, senior adviser for Policy and Legislation at the Tragedy Assistance Program for Survivors, a nonprofit dedicated to caring and advocating for Gold Star families.

"We are not honoring the commitment we have made to our service members and veterans who have not only earned this, they have paid for it either with their deferred compensation or their life."

Now, with a November 21 deadline looming to pass the NDAA, Senate Armed Services Chairman Jim Inhofe, R-Oklahoma, is proposing a temporary extension of defense funding at its current level, which does not address the "widow's tax" or a number of other outstanding fixes to the sweeping tax reform law. It would extend funding for the Department of Defense likely into tax filing season, forcing Gold Star families to prepare for a second year of sky-high taxes.

'Kiddie tax' has hit the Fry family hard

For Malia and her kids, the "kiddie tax" has meant scrimping and saving. C.L., who is now 16 years old and the spitting image of his father, would not be able to go on his band trip this year.

"We cut things like a new band instrument," Malia says. "You don't eat out and you buy the off-brand macaroni."

And if Congress fails to address the "widow's tax," life will be significantly more difficult for the Fry family. In the next few years, as the two youngest Fry children come of age, their survivor benefits from the Defense Department will expire.

Before her husband died, Malia held down part-time jobs between changes of duty stations by babysitting or working at Walmart. After, she dedicated herself full-time to her three children. Now that they're older, she has started college and plans to major in political science. But she won't make enough money.

"I will have to sell my house. The house I bought after he died that I moved to and raised our children from the ages of 2, 7 and 9," Malia says.

It's the kind of house where Gunnery Sgt. Fry dreamed of bringing up his children.

In August 2005, two weeks before deploying to Iraq, he sat down with his wife to discuss what would happen if he died.

"I told him I don't want to talk about this, and he said, 'We have to talk about this,'" Malia recounts.

She would have to move. The couple was living on base at Camp Lejeune in North Carolina, but their families were in Texas.

"He said to me, 'Buy some land so the boys can run in the country like I did as a kid,'" Malia recalls her husband saying two weeks before he deployed.

And that's what she did.

Malia bought a house in a small town outside of Waco, Texas, five miles up the road from her husband's childhood home. Her children grew up playing in the limestone creek that borders one side of the property, the same creek John Fry played in as a child.

During that difficult pre-deployment conversation, John also reviewed the separate benefits from the VA Department and the Defense Department that his wife would receive if he did not return.

"He said, 'You will get this forever. I will take care of you forever,'" she says, tearing up.

He did not, Malia says, know the benefits would not pay out in full.

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