Over 133,000 wounded warriors eligible for tax refunds

February 08, 2018 - 12:57 pm

If you are a wounded warrior that got a lump-sum disability payout, you may be getting an unexpected tax refund.

Federal law says that veterans with combat-related injuries who recieve a one-time lump sum disability payout after separating from the military are not supposed to be taxed on it.

But they were.

Since January 17, 1991, Department of Defense wrongly withheld taxes on these payments to about 133,000 qualifying vets without them knowing.  It took an act of Congress to reverse it.  DoD may pay out as much as $78 million.

In 2016, Senator Mark R. Warner (D-VA) teamed up with Senator John Boozman (R-AK) to pass the Combat-injured Veterans Tax Fairness Act, requiring DoD to identify veterans who were wrongly charged the tax and refund them the full amount.  DoD is just now starting the notification process.

“These are veterans who were wounded in service to our country, but because of Pentagon bureaucracy, many of them were robbed of money that they had earned through their service, payments that were intended to help them transition into civilian life. They deserved better. I am glad that our legislation has kicked-off the process to restore these improperly withheld taxes,” said Sen. Warner. “I encourage those Virginians who receive letters to promptly file for a refund, and my office stands ready to assist.”

DoD will start sending out notification letters in the next few weeks. 

Mike Boehme, State Commander, Department of Virginia, Veterans of Foreign Wars says if you get a letter, don't let it slide.  “I urge all veterans who receive the notification letter to follow the instructions for filing an amended tax return to receive the refund."  Veterans who receive the personalized letter will have one year from that date to file for the refund.

Your disability severance payment was calculated by multiplying your years of service by two times your basic pay.  Every wounded warrior's lump sum will be different based on rank and years in service.  The federal taxes that were withheld were calculated based on that year's IRS tax table and the veteran's filing status.