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Some Veterans Eligible for Disability-Based Tax Refunds

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In a recent publication, the IRS notified taxpayers that some veterans who received disability severance payments and included the payment as income on a tax return could be eligible for a refund. For help determining whether you qualify for a refund based on your disability, please contact a tax attorney for assistance.

Who is Eligible? 

As a result of the passage of the Combat-Injured Veterans Tax Fairness Act, which was enacted in 2016, certain veterans who received disability severance payments after January of 1991 and included those payments when calculating income for tax purposes, could be eligible to receive a refund or credit from the IRS. Qualifying veterans who received a lump sum disability severance payment after leaving the service, should receive a letter from the Department of Defense (DOD) notifying them of their eligibility. However, even these individual will only be able to take advantage of this benefit if they file an amended tax return before the deadline. Generally, eligible veterans have:

  • Three years from the due date on the original return; or
  • One year from the date that they received a letter from the DOD notifying them of their right to a refund to submit an amended return.

Veterans who let this deadline pass without filing an amended tax return will miss out on the opportunity to collect this refund.

What if I Didn’t Receive a Letter from the DOD? 

Fortunately, even veterans who don’t receive letters from the DOD notifying them of their eligibility may still qualify for the refund. These individuals must still file Form 1040X, but will also be required to verify that they received a disability severance payment by submitting:

  • Documentation showing the amount of and reason for receiving the disability payment, such as a letter from the Defense Finance and Accounting Services (DFAS) issued at the time of the payment or a Form DD-214; and
  • A VA determination letter confirming the veteran’s disability or establishing that an injury or condition was incurred as a direct result of armed conflict or a wartime exercise.

Veterans who can’t find this documentation in their own files may still be able to obtain it from DFAS.

How Much Can I Claim? 

The amount that a veteran can claim based on this special refund opportunity depends on how much they were paid in disability severance, an amount that must be included on Form 1040X. However, there is also a simpler method of recovering a refund, as veterans can instead choose to claim a standard refund amount based not on their severance payment, but on the calendar year during which they received the payment. For the years between 1991 and 2005, the standard refund amount was $1,750, while the refund amount for tax years 2006 to 2010 was $2,400. Finally, the standard refund amount for the years between 2011 and 2016 was $3,200. Veterans who use this method won’t be required to find the original tax return from the year when they accepted the severance payment.

Contact Our Legal Team for Help with Your Refund  

If you received a letter notifying you of your eligibility for this refund based on your status as a disabled veteran or you believe that you qualify, please don’t hesitate to call dedicated and knowledgeable Florida tax attorney Ronald Cutler, P.A. at 386-490-9949 for an initial evaluation of your case.