AARP Hearing Center
The federal government is urging some 133,000 veterans who had money improperly withheld from their severance payments for combat-related injuries or other disability compensation to apply for tax refunds.
In some cases the improper withholding dates as far back as 1991. The Department of Defense (DOD) is sending letters to the eligible veterans this month, stating the amount of the disability payment and telling them what to do to receive a refund. Survivors of veterans who would have been eligible for this refund may also apply.
The National Veterans Legal Services Program discovered the faulty withholding. Bart Stichman, the organization's executive director, said the government’s action now “is long overdue. These are people who served in combat and were disabled in combat, and they deserve the full amount of what the military should pay them.”
The Internal Revenue Service has set up two ways for veterans to be compensated for these taxes, which should not have been deducted when the veterans received their onetime lump-sum disability severance payments.
Veterans can either file a traditional Amended U.S. Individual Income Tax Return (IRS Form 1040X) for the year in which they received the disability severance payment and reclaim all the money mistakenly deducted, or they can apply for a flat-rate refund using a simpler option on the same Form 1040X. The flat-rate refund may appeal to veterans who aren't able to locate their original returns for the year in which they received the payment.
