Combat-Injured Veterans Tax Fairness Act of 2016

Are you one of 133,000 vets who may qualify for a tax refund windfall? Don’t wait to file your claim. There is a time limit fast approaching to get your claim completed.

If you’re one of the more than 133,000 veterans who received a notice last July that you might be eligible for refunds of federal taxes you paid on disability severance pay, take heed and do it before summer. By law, you have a year to file an amended return with the IRS to get the refund, said Army Lt. Col. David Dulaney, executive director of the Armed Forces Tax Council. If you need help in filing for the refund, seek help from a tax professional, he said. Dulaney said defense officials do not receive information from the IRS about the number of veterans who have already filed for the tax refunds, because of privacy laws.

These refunds are the result of a law passed in 2016, the Combat Veterans Tax Fairness Act, which went into effect in 2017. It applies to veterans who received disability severance pay dating back to Jan. 17, 1991, with taxes withheld, and who also qualified for disability from VA. Any service member who suffers a combat-related injury and is separated from the military receives a one-time, lump-sum disability severance payment based on their rank and years of service. The payment is not supposed to be taxed in certain situations, but DoD routinely took taxes out of the severance pay, according to advocacy groups.

The 2016 law required DoD to stop improperly taxing the disability severance pay. It also required DoD to identify the veterans who were improperly taxed, and to notify them. The notification letter last July included information about the amount of disability severance payments that were improperly taxed, and DoD worked with the IRS to provide instructions on procedures for receiving the refund.

About 300,000 veterans received the disability severance payment, and DoD identified 133,000 veterans who may qualify for the refunds. The amount of refund varies by veteran, because the disability severance payment was based on rank and years of service. But officials have said it’s worth the time to file for the refund.