Press Releases

WASHINGTON—The Internal Revenue Service (IRS) is advising veterans who have been separated from service for combat-related injuries and received a severance payment that was improperly taxed to take advantage of the relief offered to them by the Combat-Injured Veterans Tax Fairness Act (P.L. 114-292), a law based off a bill authored by U.S. Senators John Boozman (R-AR) and Mark Warner (D-VA).

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 the Department of Defense (DoD). However, for years DoD improperly withheld taxes on these payments from thousands of qualifying veterans, who were typically unaware that their benefits were being improperly reduced.

The Combat-Injured Veterans Tax Fairness Act rights that wrong, but affected veterans only have a short window in which to seek restoration. The IRS is advising qualifying veterans to file Form 1040X, Amended U.S. Individual Income Tax Return, to claim a credit or refund of the overpayment attributable to the disability severance payment.

“When we introduced this bill, it was apparent that some combat-injured veterans had been unjustly deprived of their full severance upon separation by DoD despite federal law and clear Congressional intent that this not happen. When we started the process of fixing this legislatively, we believed that we would be helping several thousand veterans. We have now learned that number is much higher and there still may be more than 130,000 veterans who have yet to claim refunds. I encourage qualifying veterans to make sure they receive the benefits they are rightfully due by filing the proper paperwork with the IRS,” Boozman said.

“When we introduced this bill, it was estimated that there were only about 13,800 veterans who had been affected by a longstanding problem with DoD’s payroll system that resulted in taxes being improperly withheld from their separation payments. We’ve now learned that in fact more than 130,000 combat-injured vets may be eligible for refunds. DoD, the IRS, and Congress should do everything possible to make sure these vets know they are eligible, and I encourage any Virginia veteran with questions about the process or their eligibility to contact my office for assistance in getting their money back from the government,” Warner said.

The National Veterans Legal Services Program (NVLSP), which identified the problem in 2014 and notified Congress of the error so legislation could be passed, is continuing to help potentially affected veterans.

“Congress did the right thing in passing this legislation so thousands of combat-injured veterans could recover the money that was wrongly taken from them by the government. However, we are not at the goal line yet. NVLSP will issue advice to help veterans and their families in the coming weeks through its website at www.nvlsp.org and social media accounts,” NVLSP’s executive director Bart Stichman said.

Most veterans who received a one-time lump-sum disability severance payment when they separated from their military service will receive a letter from the DoD with information explaining how to claim tax refunds they are entitled to, including an explanation of a simplified method for making the claim. The IRS has worked closely with the DoD to produce these letters, explaining how veterans should claim the related tax refunds.

The IRS has posted an announcement with the steps to be taken to recover improperly taxed income and links to Form 1040X.