Veterans: You May Be Eligible for a Tax Refund

Matt Mercer, CPA, MBA
Senior Public Accountant, Krilogy Tax Services

If you’re one of the 130,000 combat-injured veterans whose disability severance pay was taxed between 1991 and 2016, a recent letter from the Department of Defense could be informing you that you may be eligible for a refund. This is the result of the Combat-Injured Veterans Tax Fairness Act of 2016 which allows veterans the opportunity to file an amendment to their tax returns to be considered for a refund on taxes paid or withheld on their lump sum disability pay.

While typical disability pay is taxable, disability pay related to combat related injuries (as well as other qualifying disabilities as specified by the VA) is not. However, since 1991 Congress found that some of these disability payments were taxed. If you believe you may have been improperly taxed on your disability income, here’s what you need to do:

  1. Be on the lookout for your letter from the Department of Defense. These letters were mailed during the month of July, so you should have already received your notification.
  2. If you qualify, you must complete IRS Form 1040X for the tax year you received your lump sum disability severance pay. Follow the instructions on the form very carefully.
  3. You must file the amendment within one year of receipt of the Department of Defense letter.
  4. If you did not receive a letter and believe you qualify, you may still file an amendment with IRS Form 1040X. You must provide necessary documentation along with your claim. If you do not have documentation, you contact the National Archives Personal Records Center or the Department of Veterans Affairs.

While you may file your claim for the actual amount of the disability severance payment for which tax was withheld, the IRS has acknowledged that many veterans may not have their tax returns for that year or know the actual amount withheld, and has set designated refund amounts (Simplified Method) based on the year your taxes were paid. Those amounts, by tax year, are:

  • 1991 – 2005: $1750
  • 2006 – 2010: $2400
  • 2011 – 2016: $3200

If you have any questions, the Krilogy Tax Services team is here to help. Please feel free to contact our office at 314-480-3825 and we’re happy to provide any guidance you need to support you or a loved one in filing your claim.

All expressions of opinion are subject to change. This information is distributed for educational purposes only, and it is not to be construed as an offer, solicitation, recommendation, or endorsement of any particular security, products, or services. Krilogy Financial, its employees and financial advisors cannot provide tax or legal advice. Krilogy Tax Services, an affiliated entity may provide tax services and advice upon request. You should consult your attorney or qualified tax advisor regarding your situation.