July 20, 2018

Cassidy Urges Combat-Injured Veterans Who Were Improperly Taxed to File for IRS Refund

WASHINGTON—U.S. Senator Bill Cassidy, M.D. (R-LA), a member of the Senate Veterans’ Affairs Committee and the Senate Finance Committee, is urging combat-injured veterans whose one-time lump sum disability severance payment from the Department of Defense (DoD) was improperly taxed to file with the IRS for reimbursement.

“I’m glad we were able to make things right for our veterans so they can finally receive the full amount of the benefit they earned. Eligible veterans in Louisiana should keep an eye out for a letter from the Department of Defense outlining how they can file to receive a refund,” said Dr. Cassidy. “You must file within a year of receiving the letter, so don’t delay. And since some taxes were improperly withheld from disability severance payment as far back as 1991, veterans should do their own due diligence to see if they are eligible for a refund, even if they don’t receive a letter from DoD. While we cannot file with the IRS for you, my office is ready to help anyone who has questions about the process.”

The IRS recently released guidance for veterans on how to recover these funds by filing Form 1040X. This opportunity is a result of the Combat-Injured Veterans Tax Fairness Act (P.L. 114-292), a law supported by Cassidy and passed by Congress in 2016.

Under federal law, veterans who suffered combat-related injuries and were separated from the military are not supposed to be taxed on the one-time lump sum disability severance payment from DoD. But for decades, DoD mistakenly withheld taxes on payments to veterans, who were often unaware their benefit was reduced by the tax. The law supported by Cassidy corrects that problem, but veterans must file for a refund before the deadline.

According to the IRS, “Most veterans who received a one-time lump-sum disability severance payment when they separated from their military service will receive a letter from the Department of Defense with information explaining how to claim tax refunds they are entitled to[.] … The amount of time for claiming these tax refunds is limited. However, the law grants veterans an alternative timeframe – one year from the date of the letter from DoD. Veterans making these claims have the normal limitations period for claiming a refund or one year from the date of their letter from the DoD, whichever expires later. As taxpayers can usually only claim tax refunds within 3 years from the due date of the return, this alternative time frame is especially important since some of the claims may be for refunds of taxes paid as far back as 1991.”

The National Veterans Legal Services Program (NVLSP) also plans to issue advice to help veterans file for reimbursement.