WASHINGTON- The Department of Defense (DoD) will begin the process of refunding thousands of veterans who were taxed on disability severance pay since 1991 thanks to legislative efforts by U.S. Senators John Boozman (R-AR) and Mark Warner (D-VA).
“For nearly three decades our wounded combat veterans were unfairly penalized for injuries they sustained while in service to our country. I’m pleased that the Department of Defense is beginning the process to right this wrong and provide our veterans with the benefits they earned. I encourage Arkansas veterans who receive a notification from the Department of Defense to file a claim,” Boozman said.
Under federal law, veterans who suffer combat-related injuries and who are separated from the military are not supposed to be taxed on the one-time lump sum disability severance payment they receive from DoD. Unfortunately, taxes on combat-related disability severance payments have nonetheless been withheld from qualifying veterans for a number of years due to the limitations of DoD’s automated payment system. More than 133,00 veterans may qualify for the refund.
Boozman and Warner introduced the Combat-Injured Veterans Tax Fairness Act of 2016 to correct this problem. The legislation directs DOD to identify veterans who have been separated from service for combat-related injuries and received a severance payment that was improperly taxed by the federal government. It instructs DOD to determine how much the combat-wounded veterans are owed and allow veterans who have been improperly taxed to recover the withheld amounts.
The problem of improper taxation of the severance payments to combat-injured veterans was originally identified by the National Veterans Legal Services Program (NVLSP), an independent, nonprofit veterans service organization that has served active duty military personnel and veterans since 1980.