If your disability severance payment was taxed, the IRS owes you a refund

Kaylah Jackson
July 17, 2018 - 1:03 pm

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If you are one of the over 133,000 disabled veterans who receive a disability severance payment, good news: you could be in for a tax refund.

One-time disability severance payments for veterans who have combat-related injuries are exempt from being taxed, but between 1991 and 2016, thousands of veterans were taxed anyway.

Thanks to the Combat-Injured Veteran Tax Fairness Act of 2016,  the DoD is now required to identify veterans who were wrongly charged the tax and refund them the full amount.

    The IRS calculated standard refund amounts based on when you received the disability severance payment. For tax years 1991 to 2005, you will receive $1,750; $2,400 for tax years 2006 to 2010; and $3,200 for tax years 2011 to 2016.

    If you are filing for a refund, you can submit a claim based on your actual disability severance using the completed Form 1040X, which is an Amended U.S. Individual Income Tax Return. 

    Click here to download and print Form 1040X

    Depending on your situation, your deadline to file for a claim might differ:

    • One year from the date of the DoD notice.
    • Three years after the due date for filing the original return for the year the disability severance payment was made
    • Two years after the tax was paid for the year the disability severance payment was made, according to IRS records.

    Watch your mailbox for information.  Notices started mailing out on July 9, according to Army Lt. Col. David Dulaney, the executive director for the Armed Forces Tax Council.  That letter will detail your specific deadline.

    But, if you haven't received a letter concerning the refund, you can visit the IRS website for more information. Estates or surviving spouses whose veteran is deceased are able to file a claim on behalf of the service member.

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