Certain veterans who received disability severance payments after January 17, 1991, and included that payment as income should file Form 1040X, Amended U.S. Individual Income Tax Return, to claim a credit or refund of the overpayment attributable to the disability severance payment. The refund is the result of the Combat-Injured Veterans Tax Fairness Act passed in 2016.
Most veterans who received a one-time lump-sum disability severance payment when they separated from their military service will receive a letter from the Department of Defense with information explaining how to claim tax refunds they are entitled to; the letters include an explanation of a simplified method for making the claim.
The amount of time for claiming these tax refunds is limited; however, the law grants veterans an alternative timeframe of one year from the date of the letter from DoD. Veterans making these claims 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 3 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.
Veterans can submit a claim based on the actual amount of their disability severance payment by completing Form 1040X and carefully following the instructions. There is also a simplified method where veterans can instead choose to claim a standard refund amount based on the calendar year (i.e., an individual’s tax year) in which they received the severance payment. Claiming the standard refund amount is the easiest way for veterans to claim a refund because they do not need to access the original tax return from the year of their lump-sum disability severance payment.
Veterans eligible for a refund who did not receive a letter from DoD may still file Form 1040X to claim a refund but must include additional documentation to verify the disability severance payment. Veterans who did not receive the DoD letter and who do not have the required documentation showing the exact amount of and reason for their disability severance payment will need to obtain the necessary proof by contacting the Defense Finance and Accounting Services (DFAS).
Please contact the office if you need additional information or assistance filing Form 1040X.