The IRS has urged certain veterans who received disability severance payments after January 17, 1991, and included that payment as income that they should file Form 1040X, Amended U.S. Individual Income Tax Return, to claim a credit or refund of the overpayment attributable to the payment. Most veterans who received a one-time lump-sum disability severance payment when they separated from military service will receive a letter from the Department of Defense (DoD) with information explaining how to claim tax refunds they are entitled to.
Taxpayers can usually only claim tax refunds within three years from the due date of the return. Under the Combat-Injured Veterans Tax Fairness Act passed in 2016, veterans making these refund claims have until the later of the normal refund limitations period or one year from the date of their letter from the DoD to make the claim. The alternative time frame is important because some veterans’ claims may be for refunds of taxes paid as far back as 1991.
Refund Claim Amount
Veterans can either submit a refund claim based on either:
- the actual amount of their disability severance payment; or
- a standard refund amount based on the calendar year (an individual’s tax year) in which they received the severance payment.
Veterans claiming the standard refund amount must write “Disability Severance Payment” on line 15 of Form 1040X, and enter on lines 15 and 22 the standard refund amount that applies to them.
Veterans claiming these refunds should write either “Veteran Disability Severance” or “St. Clair Claim” across the top of the front page of the Form 1040X, and mail it with a copy of the DoD letter to: Internal Revenue Service, 333 W. Pershing Street, Stop 6503, P5, Kansas City, MO 64108.
If a veteran is eligible for the refund but did not receive the DoD letter, he or she must include with the Form 1040X both of the following:
- 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 (DFAS) explaining the severance payment at the time of the payment or a Form DD-214; and
- A copy of either the Department of Veteran Affairs 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 DoD letter and who do not have the required documentation will need to obtain the necessary proof by contacting the DFAS.