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The Maui News
Some veterans who received disability severance payments after Jan. 17, 1991, and claimed the payment as income could receive a credit or refund from the Internal Revenue Service for overpayment of taxes.
Those veterans should file Form 1040X, Amended U.S. Individual Income Tax Return, the IRS said last month.
The change in the status of the disability severance payments derives from the Combat-Injured Veterans Tax Fairness Act passed by Congress in 2016.
Most veterans who received a one-time lump-sum disability severance payment when they separated from military service have received or will be receiving a letter from the Department of Defense with information explaining how to claim tax refunds. The letter includes an explanation of a simplified method for making the claim.
The IRS has worked closely with the Department of Defense to produce the letters, explaining how veterans should claim the related tax refunds.
There is a time limit to making the claim -- one year from the date of the letter from the Defense Department or the normal limitations of claiming a refund -- whichever is longer. Taxpayers usually can claim tax refunds within three years from the due date of the return.
The one-year limit is especially important since some of the claims may be for refunds of taxes paid as far back as 1991, the IRS said.
When making a claim, veterans can submit a claim based on the actual amount of their disability severance payment by completing Form 1040X or claim a standard refund amount based on the calendar year in which they received the severance payment.
Write "Disability Severance Payment" on line 15 of Form 1040X and enter on lines 15 and 22 the standard refund amount: $1,750 for tax years 1991-2005; $2,400 for 2006-2010 or $3,200 for 2011-2016.
All veterans claiming refunds for overpayments attributable to their lump-sum disability severance payments should write either "Veteran Disability Severance" or "St. Clair Claim" across the top of the front page of the Form 1040X that they file.
Because all amended returns are filed on paper, veterans should mail their completed Form 1040X with a copy of the Defense Department letter to: Internal Revenue Service, 333 W. Pershing St., Stop 6503, P5, Kansas City, MO 64108.
Veterans eligible for a refund who did not receive a letter from the Defense Department still may file Form 1040X to claim a refund but must include the following to verify the disability severance payment:
• A copy of documentation showing the exact amount of and reason for the disability severance payment, such as a letter from the Defense Finance and Accounting Services explaining the severance payment at the time of the payment or a Form DD-214.
• A copy of either the VA determination letter confirming the veteran's disability or a determination that the veteran's injury or sickness was either incurred as a direct result of armed conflict, while in extra-hazardous service, or in simulated war exercises, or was caused by an instrumentality of war.
Veterans who did not receive the Defense Department 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 proof by contacting the Defense Finance and Accounting Services by email at www.dfas.mil/dsp_irs .html. The agency's email is dfas.cleveland-oh.jjf.mbx.dfas-irs-combat-injured-veterans-tax-f@mail.mil.