A year ago, the Internal Revenue Service alerted combat-injured veterans that some of them might be due tax refunds.
This is the case for eligible service members who received disability severance payments after 1991 and then claimed that money as income on their tax returns.
That was a mistake.
The Combat-Injured Veterans Tax Fairness Act of 2016 says that most veterans who received a one-time, lump-sum disability severance payment when they left the military are entitled to a refund if that payment was claimed as income.
To qualify for the refund, qualifying vets must have received the payment after Jan. 17, 1991, and before Jan. 1, 2017.
When the IRS brought these potential veterans' tax over-payments to light in July 2018, it noted that affected former service members should have received a mailed notice from the Defense Department explaining how to claim their tax refunds. Those notices would have been titled either 6060-A or 6060-D.
Now, however, time to claim those refunds is fast running out and the IRS is concerned that some eligible veterans have not yet taken the necessary steps to get their rightful refunds.
Deadline to claim refunds: This military over-payment instance is in one regard like all tax matters. Deadlines apply.
Claims for the severance payment tax refunds must be made by:
- One year from the date of the Department of Defense (DoD) notice, or
- Three years after the due date for filing the original return for the year the disability severance payment was made, or
- Two years after tax was paid for the year the disability severance payment was made.
Veterans claiming their refund 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 three 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.
Time running short: The IRS says that many veterans have claimed their refunds in the past year.
Many others, however, have not and they need to act now.
"We appreciate the service and sacrifice of our nation's combat-injured veterans, and the IRS is pleased to help deliver refunds under this special provision," said IRS Commissioner Chuck Rettig in a statement this month once again reminding vets of the potential refunds.
"Time is running out this month for many people who qualify for this refund," added Rettig. "We urge combat-injured veterans to take time review the provisions to see if they are eligible."
Getting military tax over-payment back: So what are those steps?
Qualifying former service members have two options.
One is to file a claim based on the actual amount of the over-payment attributable to your lump sum disability severance payment.
The other is to claim the standard refund amount (listed below) that corresponds to the year the disability severance payment was made. You do this by filing an amended tax return, aka Form 1040-X, for the year in which the severance payment was erroneously reported as income.
Those standard amounts, which many will choose to claim since they mean they don't have to search for their original tax return or requesting information about the return from the IRS, are:
- $1,750 for tax years 1991 through 2005,
- $2,400 for tax years 2006 through 2010 and
- $3,200 for tax years 2011 through 2016.
Note, though, that while using the standard amount as your claim, it may result in a larger or smaller refund that one based on the actual amount from your return.
But if the hassle factor is as or more important to you than digging out old tax and military records, then the standard route is the one to take.
Filing an amended return: If you file a Form 1040-X, write "Disability Severance Payment" on line 15 of the form and enter the standard refund amount on line 15, column B, as well as on line 22. Leave the remaining lines blank.
Also write either "Veteran Disability Severance" or "St. Clair Claim" depending on the instructions in the DoD letter across the top of the front page of the Form 1040-X.
Note, too, that you can't e-file a 1040-X. All amended returns must be filled out on paper and mailed, along with a copy of the DoD letter, to:
Internal Revenue Service
333 W. Pershing Street, Stop 6503, P5
Kansas City, MO 64108
While amended return filers usually must attach the original 1040 form that is being changed, in these military disability over-payment cases the IRS says that's not necessary as long as you have the information from that return available.
If you don't have that data, you can get it by requesting a tax transcript online.
No DoD notice: Veterans who did not receive a DoD notice but did get a disability severance payment after Jan. 17, 1991, that was reported as taxable income, still can file a tax refund claim.
In these cases, the veterans must include the necessary documentation with their 1040-X.
Veterans should contact the National Archives' National Personnel Records Center or the Department of Veterans Affairs to obtain the required documentation for submission with their Form 1040-X.
You can find more at the IRS' special Combat Injured Veterans Frequently Asked Questions online page. If you can't find the question or answer about your disability severance payment how to file for a tax refund, you can call the IRS toll free at (833) 558-5245, extension 378, between 7 a.m. and 7 p.m. your local time (Alaska and Hawaii follow Pacific time).
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