If you're a wounded warrior who has been receiving lump-sum disability severance payments since 1991, you may be owed a sizeable tax refund, and you should file for it now, while you're doing this year's taxes.
The Combat-Injured Veterans Tax Fairness Act of 2016 allows certain veterans who got lump-sum payments and were wrongly taxed on it to be refunded the amount they paid in taxes. The law reaches back to severance payments paid after Jan. 17, 1991. The Department of Defense mailed letters to affected veterans in July 2018, but if you didn't get a letter and you believe you were wrongly taxed, you can still apply for the refund.
Veterans discharged from military service due to medical disability often receive a one-time lump sum severance payment. Disability severance pay is taxable income unless the pay results from a combat-related injury or the service member receives official notification from the Department of Veterans Affairs (VA) approving entitlement to disability compensation.
RELATED: We talked to the Senators who fought for the refund
If you think you were wrongly taxed, the Combat-Injured Veterans Tax Fairness Act of 2016 provides additional time to claim the refund.
Here's what you need to do:
You must complete and file IRS Form 1040X, an amended U.S. Individual Income Tax Return, for the tax year the disability severance payment was made.
If you received a letter from the DoD in July 2018, carefully follow the directions. You must mail the claim generally by the later of:
- 1 year from the date of the Department of Defense notice, or
- 3 years after the due date for filing the original return for the year the disability severance payment was made, or
- 2 years after the tax was paid for the year the disability severance payment was made.
If you did not receive the notice from the DoD and you received a disability severance payment after Jan. 17, 1991 that you reported as taxable income, you can still file a claim as long as you attach the necessary documentation to your Form 1040X.
RELATED: Details on the Combat-Injured Veterans Tax Fairness Act of 2016
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