Severance Pay & Taxes

[Guest]

My question is about severance pay and taxes paid on that severance pay. Recently, literally today, it has come to my attention that if the VA rates a Vet disability we can reclaim that tax money paid with our severance pay. Basically, in a nutshell, will all the money paid in taxes, for me 2009, be refunded or is there some kind of gauge to measure how much to expect in return? Say if you paid $6000 you get roughly 10% of that back or is all $6K refunded to you? I just don't want any thing to come back and bite me. You know?

I called the IRS; I've seen crazy stuff about you need to submit corrected W-2's from DFAS, final orders, submit DD-214, blah, blah, blah & blah. The only thing the IRS said I need to send them is a 1040X, VA determination letter with the award and effective start date of that award letter. As well as the amount of my severance pay that was taxed. I have all this information.

My last concern is the deadline is Apr. 15, 2013 for me. I have an appointment with H&R Block Thursday. I will more than likely submit this 1040X to the IRS on the 26th-same day. My question is, can the government sit on this paperwork until Apr 16, 2013 next year and send me a reply back telling me that my 3 years are up and I am no longer entitled to that recoupment of tax monies paid? I could seriously see the government doing something like that if it is possible. You know how they can be!!!

Does anyone know what's up or have personal experience in this area? I think I am being over paranoid but if you lived my life you would be the same way.

[jvretiredvet]

You've got almost everything correct except for the statute of limitations for refunds. Prior to June 2008, the SOL was in fact 3 years. The HEART Act (PL 110-245) changed the SOL somewhat for retroactive VA disability determinations, either for retired military or for those who received a military lump-sum disability severance pay. That act allowed me to amend my 2002 return in 2009, but that was an exception for us old farts.

Special statute of limitations. In most

cases, under the statute of limitations a claim for

credit or refund must be filed within 3 years from

the time a return was filed. However, if you

receive a retroactive service-connected disabil-

ity rating determination, the statute of limitations

is extended by a 1-year period beginning on the

date of the determination. This 1-year extended

period applies to claims for credit or refund filed

after June 17, 2008, and does not apply to any

taxable tax year that began more than 5 years before the

date of the determination.

So, depending on dates, we're either looking at a usable Statute of Limitations, or conversely Shit Outta' Luck.

Basically, you would have to get your initial discharge changed AND you would have to get your rating through the VA in order to have that years tax money you paid refunded back to you. It can be done. You just have to gather the facts and submit it ALL as evidence to uphold your claim. Just remember you have three years for IRS purposes. I guess they figure that's enough time. HOWEVER, even if you don't meet the IRS's deadline, I would still try to get my rating changed. In my opinion it would look better than an involuntary separation which is open for speculation as to what really happened. There's more than one way to skin a cat. In my life it works like this, the more I want the less I get and the less I want the more I get.

[Guest]

When I called the IRS, they told me 3 years. They said there are exceptions but since I fall within the Statue of Limitations that I do not need to worry. I suppose what you mentioned is what they were referring to. Certainly great information to know for those who need it. Thanks. Will tell others as necessary.

Edited December 20, 2012 by Guest