The Combat-Injured Veterans Tax Fairness Act of 2016 was passed on December 16, 2016, to restore amounts improperly withheld for tax purposes from severance payments to individuals who retired or separated from service in the Armed Forces for combat-related injuries, and for other purposes.
Since 1991, the Secretary of Defense improperly withheld taxes from severance pay for wounded veterans, thus denying them their due compensation and a significant benefit intended by Congress. Many veterans owed back taxes are beyond the statutory period to file an amended tax return because they were not or are not aware that taxes were improperly withheld.
The Act requires the Secretary of Defense to notify those individuals who were impacted for tax purposes and provide them their information and instructions for filing amended tax returns to recover the amounts improperly withheld. The Secretary has one year from the date of enactment (December 16, 2017) to do so.
Veterans must act within one year of receiving the notification to claim their refunds.
Those affected include veterans that received an increase in their percentage of disability from the Department of Veterans Affairs (which may include a retroactive determination) or combat-disabled veterans applying for, and granted, Combat-Related Special Compensation, after an award for Concurrent Retirement and Disability.
The disabled veteran will need to file the amended return to claim a refund. Form 1040X, Amended U.S. Individual Income Tax Return, to correct a previously filed Form 1040, 1040A or 1040EZ. An amended return cannot be e-filed. It must be filed as a paper return. Disabled veterans should include all documents from the Department of Veterans Affairs and any information received from Defense Finance and Accounting Services explaining proper tax treatment for the current year.
If needed, veterans should seek assistance from a competent tax professional before filing amended returns based on a disability determination. Refund claims based on an incorrect interpretation of the tax law could subject the veteran to interest and/or penalty charges.
Some key points:
- The Secretary of Defense has until 12/16/2017 to notify all who have been affected; however, many may not receive their notification if their address in the DoD system is not current or for some other reason they did not receive their mail.
- The veteran has one year from the time they are notified to file an amended tax return.
- The general recommendation is that the veteran contact their CPA for guidance on amending their return.
If you need assistance with this, our treasurer can connect you with someone who can help.