Veterans who received disability severance payments from an injury incurred in combat after January 17, 1991, and included it as income, are urged to file Form 1040X, Amended U.S. Individual Income Tax Return, to claim a credit or refund of the overpayment attributable to the payment.
Most veterans, who received a one-time lump-sum disability severance payment when they separated from military service will receive a letter from the Department of Defense (DoD) explaining how to claim tax refunds.
Normally, taxpayers can only claim tax refunds within three years from the due date of the return. However, under the Combat-Injured Veterans Tax Fairness Act passed in 2016, veterans filing these refund claims have until the later of the normal refund limitations period or one year from the date of their letter from the DoD to make the claim. The alternative time frame is important because some veterans’ claims may be for refunds of taxes paid as far back as 1991.
Refund Claim Amount
Veterans can either submit a refund claim based on either:
• The actual amount of their disability severance payment; or
• A standard refund amount based on the calendar year (an individual’s tax year) in which they received the severance payment.
Veterans claiming the standard refund amount must write “Disability Severance Payment” on line 15 of Form 1040X. Lines 15 and 22 must include the standard refund amount that applies to them.
Instructions for Veterans to Claim Disability Severance Payments
A. For Veterans who received the DoD letter, the following 2 items must be included in the request for a refund:
– Form 1040X with “Veteran Disability Severance” or “St. Clair Claim” written across the top of the front page
– A copy of the DoD letter
B. For veterans who did not receive the DoD letter, the following items must be sent to the IRS:
– Form 1040X
– A copy of documentation showing the exact amount 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;
– A copy of either the Department of Veteran Affairs 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.
Veterans who did not receive the DoD letter and who do not have the required documentation will need to obtain the necessary proof by contacting the DFAS.
Mail forms to: Internal Revenue Service, 333 W. Pershing Street, Stop 6503, P5, Kansas City, MO 64108.
If you have questions about the disability severance payments for veterans, contact an MCB Tax Advisor at 703-218-3600 or click here. To review a summary of recent tax news articles, click here. To learn more about MCB’s tax practice and our tax experts, click here.