More than 130,000 veterans are receiving letters on how to apply for refunds of taxes they paid on disability severance pay dating back to 1991 — a minimum of $1,750 per veteran.While exact estimates were not available, because each veteran’s payout varies, the government could be paying out a minimum of $228 million in tax refunds, if all those eligible file claims.
The eligible veterans will have a year after the date of their letter from the Defense Department to file a claim for the refund, or three years after filing their tax return that reported the disability severance pay, whichever is later. Survivors of those who paid the taxes are also eligible for the refund, which would be paid to the estate of the veteran.
The mailings to 130,062 veterans started on July 9, and are scheduled to be completed by July 20. The letters are being sent by the Internal Revenue Service on behalf of the Defense Department, because the IRS maintains the last known addresses of taxpayers, said Army Lt. Col. David Dulaney, executive director of the Armed Forces Tax Council.
These refunds are the result of a law passed in 2016 — the Combat Injured Veterans Tax Fairness Act of 2016 — which applies to veterans who received this pay dating back to Jan. 17, 1991, with taxes withheld. By law, DSP is not taxable if:
The DSP is paid for combat-related injuries determined by the military service at the time of separation, or, the veteran is eligible for disability compensation from the Veterans Affairs department.