As a result of the 2016 Combat-Injured Veterans Tax Fairness Act more than 133,000 injured vets may qualify for a federal tax refund. The minimum refunds are estimated to be $1,750 meaning the government will be paying out an estimated minimum of $228 Million.
The tax refunds are owed to veterans who received disability severance payments after Jan. 17, 1991, and included that payment as income on their tax returns. According to the IRS, most vets 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 (DOD) explaining the process to follow in order to claim their refund.
For years for which the normal statute for claiming a refund has expired, the vets will have one year from the date of the DOD letter to file a 1040-X to claim their refund. Vets have two options in determining the amount of their refund:
- Amend the original return using actual numbers from the original return, or
- Claim a standard refund amount based on the calendar year in which they received the severance payment. When claiming the standard amount that amount should be entered on lines 15 and 22 of the 1040-X and “Disability Severance Payment” entered on line 15. The standard amounts are:
- $1,750 for tax years 1991 – 2005
- $2,400 for tax years 2006 – 2010
- $3,200 for tax years 2011 – 2016
Claiming the standard tax refund amount is no doubt the simplest way to claim the refund, because the veteran doesn’t need to access the original tax return from the year of their lump-sum disability severance payment.
For returns claiming this refund write either “Veteran Disability Severance” or “St. Clair Claim” across the top of the front page of the Form 1040X. Returns should be mailed to:
Internal Revenue Service
333 W. Pershing Street, Stop 6503, P5
Kansas City, MO 64108
Veterans who are eligible for a refund and don’t receive a letter from the Defense Department can still file Form 1040-X to claim a refund but need to include both of the following to verify the disability severance payment:
- A copy of documentation displaying the exact amount of and reason for the disability severance payment, such as a letter from the Defense Finance and Accounting Services 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.
Vets who don’t have the necessary documentation indicating the exact amount of their disability severance payment and the reason for it will have to contact the Defense Finance and Accounting Services for the needed documentation.