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August 08, 2018 | Posted in:

IRS to Give Millions in Tax Refunds to Disabled Vets

A little-known law passed back in 2016 named the Combat-Injured Veterans Tax Fairness Act will now result in over 200 million dollars in refunds for over 133,000 individual Armed Service Veterans wounded in combat since 1991. Essentially, the 2016 law makes all disability payments to combat-injured veterans non-taxable retroactive to 1991. Anyone who reported this income on their tax returns can now file an amended return to get a refund, even for years outside of the normal 3 year window for amending returns.

Who can Benefit?

Any military veteran who received disability severance payments since 1991 and up until 2016 are eligible if they included that income on their tax returns. Veterans who received a lump sum disability severance payment upon separating from their service will receive a letter from the Department of Defense with details of what they are owed and how to claim the refund.

What are the Savings?

The IRS is has allowed for refunds of $1,750 – $3,200 depending on the year the taxpayer reported the income.

When Will it Happen?

The IRS is working with the Department of Defense to finalize the letters to claimants now, but if you are eligible there is no need to wait. You can file the amended returns right away.

How to Claim a Refund

If the armed service member received payments after January 17, 1991 as a monthly or lump sum amount, they are eligible for a refund in any year they reported the income. To claim this refund the taxpayer must file a 1040X amended return for any year in question. There are two options for claiming the refund:

  • The taxpayer can make a claim based on the amount they reported on their tax returns by filing an amended return without claiming the income.
  • If the taxpayer is not in possession of their returns or would like a simplified method, the IRS will allow them to file an amended return by simply writing “Disability Severance Payment” on Line 15 of form 1040X and calculating the standard amount the IRS has authorized on line 15 or 22:

1991 – 2005 = $1,750

2006 – 2010 = $2,400

2011 – 2016 = $3,200

The taxpayer should also write “Veteran Disability Severance” or “St. Clair Claim” across the top of the amended return whether they choose option 1 or 2 and include both:

A copy of documentation showing the exact amount of and reason for the disability severance payment, such as a letter from the Defense Finance and Accounting Services (DFAS) explaining the severance payment at the time of the payment or a Form DD-214, and

A copy of either the VA determination letter confirming the veteran’s disability or a determination that the veteran’s injury or sickness was either incurred as a direct result of armed conflict, while in extra-hazardous service, or in simulated war exercises, or was caused by an instrumentality of war.

Where can I get Help?

To take advantage of this program, reach out to an Alloy Silverstein tax advisor or give us a call at (856)667-4100.

 

Author: Matthew McCarthy

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