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Did You Know About Veteran’s Disability Severance Payments?

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Non-taxable severance payments may be sought

Veteran’s discharged from active duty service due to a medical disability may now receive a one-time lump sum severance payment in certain situations. 

Veterans who received a lump sum payment that was taxable to them, and the payment was originally received due to a combat-related injury, or the Department of Veteran’s Affairs (VA) later determine the payment to be non-taxable disability compensation,  the veteran may claim a refund using Form 1040X for the year in which the disability severance was received.  

In most instances, three years is the deadline for amending your tax return

Amended returns must be filed within three years of filing your original return.  The Combat injured Veterans Tax Fairness Act of 2016 gives certain veterans who received combat-related disability severance payments after January 17, 1991 additional time to file claims for credit or refund to recover tax overpayments related to their disability severance payments. 

Veterans affected by this legislation should receive a notice from the Department of Defense reporting the amount of their eligible disability severance payments. 

Filing a request for refund

Please note that a request for refund must be filed no later than one year from the date of the notice, or the normal deadline for filing a claim for refund.

Scott Cost, Sobel & Co.