Veterans to Receive "Combat-Injured Veterans Tax Fairness Act" Letters

In 2016, Congress passed a law known as the Combat-Injured Veterans Tax Fairness Act. The law entitles more than 133,000 injured veterans to tax refunds as far back as 1991. The objective of the law is to ensure that veterans who suffer service-ending combat-related injuries aren’t taxed on the severance payment they receive from Department of Defense (DOD).

The DOD is just beginning to send letters to the eligible veterans with information explaining how to claim the tax refunds. The letters will provide an explanation of a simplified method for claiming the refund, and explain the time limits for making the claims.

The amount of time for claiming the tax refunds is limited.  Veterans who have claims for refunds can amend their tax returns claiming the refund in the normal limitations period for filing amended tax returns, or three years.  Obviously, some of these amended returns are already time barred.  The law gives veterans an alternative time frame, or one year from the date of the letter from DOD. In other words, veterans can make a claim for the refund for one year from the date of their letter from the DOD, or within three years of the original filing deadline for the return, whichever expires later.

There are a couple of ways a veteran can claim the refund.  A veteran can either send in a claim based on the actual amount of the disability severance payment received by filling out Form 1040X, but a veteran must carefully follow the instructions for making the claim.  Alternately, a veteran can opt for a simplified method. The veteran can simply choose to claim a standard refund amount based on the calendar year in which the veteran received the severance payment. The veteran then writes “Disability Severance Payment” on line 15 of Form 1040X and enters on lines 15 and 22 the standard refund amount listed below that applies:

• $1,750 for tax years 1991 – 2005
• $2,400 for tax years 2006 – 2010
• $3,200 for tax years 2011 – 2016

For more information talk with your tax attorney or go here.