The Combat-Injured Veterans Tax Fairness Act allows certain veterans who received lump sum disability severance payments additional time to file a claim for credit or refund of an overpayment attributable to the disability severance payment. The law directed the Secretary of Defense to identify 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 and to provide notice of the amount of that payment.
What This Means for Some Veterans
Those discharged from military service due to medical disability may receive a one-time lump sum severance payment.
- Disability severance pay is taxable income unless:
- the pay results from a combat-related injury
- the service member receives official notification from the Department of Veterans Affairs (VA) approving entitlement to disability compensation.
Anyone who received a disability severance payment that was taxed and determines later that the payment qualifies under one of the rules above 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 a tax return.
For veterans who received a lump sum disability severance payment after January 17, 1991, the Combat-Injured Veterans Tax Fairness Act of 2016 provides additional time to claim a credit or refund for the overpayment attributable to the disability severance payment.
You must complete and file IRS Form 1040X, Amended U.S. Individual Income Tax Return, for the tax year the disability severance payment was made carefully following the notice instructions.
You must mail the claim generally by the later of:
- 1 year from the date of the Department of Defense notice, or
- 3 years after the due date for filing the original return for the year the disability severance payment was made, or
- 2 years after tax was paid for the year the disability severance payment was made.
If you did not receive the 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 Form 1040X.
After serving this country with honor, it’s only right that you receive all the benefits for your service. If any mistakes were made filing your taxes, go ahead and have them amended!
Contact our office if you need trusted, competent tax advocates to fight on your behalf. Schedule a consultation today!