Tax Counsel for Military Veterans Tax Refund

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While helping a veteran organize their business, tax planning and filing the respective tax return, we came across the following information about veterans tax refunds. We believe this is important enough to share. We hope you find the following information from the Internal Revenue Service and Department of Defense, valuable as well.

Due to The Combat-Injured Veterans Tax Fairness Act of 2016, enacted in December of 2016, the Internal Revenue Service and Department of Defense are attempting to reach veterans who received disability severance payments after January 17, 1991. Veterans who received these lump sum disability severance payments, and included them as income, may now be eligible to file an Amended U.S. Individual Income Tax Return to claim a credit or refund of the tax overpayment attributable to those payments.

Generally, disability severance pay is taxable income unless the pay results from a combat-related injury or the service member receives official notification from the Department of Veterans Affairs (VA) approving entitlement to disability compensation. Currently, as of July 2018, the DoD and IRS have identified those disability severance payments paid after January 17, 1991, that were included as taxable income on Form W-2, Wage and Tax Statement, but were later determined to be nontaxable. They are now trying to reach eligible veterans through notice letters (letters 6060-A and 6060-D) mailed in or around July 2018. Unfortunately, however, it appears they were unable to reach all of the eligible veterans and are requesting assistance to spread the word.

Although the law generally states that you must file an Amended U.S. Individual Income Tax Return to claim the refund of the tax overpayment, they realize that may be difficult or impossible for some. The DoD and IRS have provided a simplified method. According to IRS Tax Tip 2018-146,   

             “Veterans can submit a claim based on the actual amount of their disability                severance payment. However, there is a simplified method where veterans 

               can instead choose to claim a standard refund amount. This amount is 

               based on the calendar year in which they received the severance payment:
                        – $1,750 for tax years 1991 – 2005
                        – $2,400 for tax years 2006 – 2010
                        – $3,200 for tax years 2011 – 2016
                Claiming the standard refund amount is the easiest way for veterans to 

                claim a refund, because they do not need to access the original tax return 

                from the year of their lump-sum disability severance payment.”

It is important to know the deadlines and requirements for claiming the refunds. Anyone who received a disability severance payment that was taxed and later learns that the payment qualifies, can file a claim for credit or refund for the tax year in which the disability severance payment was made and was included as income on the tax return. 

You must complete and file the Amended U.S. Individual Income Tax Return, for the tax year the disability severance payment was made, or you must claim the Standard Refund Amount within your identified deadline. IRS Tax Tip 2018-146 states: 

             “The veteran must mail the claim generally by the later of these dates:
                        – One year from the date of the Department of Defense notice;
                        – Three years after the due date for filing the original return 

                           for the year the disability severance payment was made; or,
                        – Two years after tax was paid for the year the disability severance 

                           payment was made.

If you did not receive your notice from the Department of Defense and you received a disability severance payment after January 17, 1991, that you reported as taxable income, you can still file a claim as long as you attach the necessary documentation to your Amended U.S. Individual Income Tax Return within the deadline. To reiterate the points addressed above, some of you only have one (1) year from the date of the notice letter. It could be, if your notice letter was dated in July of 2018, your deadline has already started ticking. It can take some time to receive your required documentation to submit with your Amended Tax Return. So, please proceed immediately.

To verify your deadline for claiming your refund, please contact the National Archives, National Personnel Records Center, the Department of Veterans Affairs, or contact the Defense Finance and Accounting Services (DFAS) to obtain your documentation for submission with the required Amended U.S. Individual Income Tax Return. 

For more additional IRS help, see the IRS.gov’s site pages: more information, FAQs, Frequently Asked Questions, Publication 3, Form 1040X, Form 1310, Information for Veterans With Disabilities, Publication 525, Taxable and Non-Taxable Income, and Publication 907, Tax Highlights for Persons with Disabilities