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130,000 disabled combat vets to get surprise refund from IRS

Stack of money and a tax return form. [401(K) 2012/Flickr]
August 10, 2018

As many as 130,000 veterans who received disability severance pay after January 17, 1991 may qualify for a tax refund, the Internal Revenue Service announced.

The tax benefit would be retroactive for vets who included their disability severance pay as income on their taxes.

Disability Severance Pay is not taxable or subject to federal income tax withholding. However, Congress found that the Secretary of Defense did withhold taxes for some vets since 1991, denying them full compensation from their benefits, according to Forbes.

Congress passed the Combat-Injured Veterans Tax Fairness Act in 2016 to remedy the problem.

The Act offers a refund to those vets who claimed the income. Additionally, since so many vets were unaware of the issue, therefore failing to file an amended return before the statute of limitations ran out, they will still qualify for the tax benefit under an alternative timeframe.

The IRS is working with the Department of Defense to send letters to the qualifying veterans which will explain what kind of refunds might be due, and how to claim those tax refunds.

The IRS will forward the letters to qualifying veterans on behalf of the Defense Finance and Accounting Service (DFAS).

The IRS has stressed that there are a small number of veterans for which they do not have mailing addresses for.

Veterans who are eligible for a refund but have not been contacted by the Department of Defense can still claim the refund by filing 1040X.

Without the letter from the DoD, correspondence should include a copy of documentation showing the exact amount of the disability severance payment, the qualifying condition or reason for payment, and a copy of the VA determination letter confirming the disability.

Those who do not have the required documentation should contact the DFAS for more information.

Information to claim the refund is also available on the website.