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Disability severance pay, recoupment, and tax refund


HeatherW
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I was medically discharged and given severance pay. It appears the va is going to rate me based on the exact conditions I was discharged for.  I know they will recoup the money before I start receiving any payments but I also saw that I can ask the irs for a refund of the taxes I paid on that severance pay.  Thing is, I paid these taxes in 1997 and I have no idea how much.  That’s ok because there is a standard amount I can claim but I don’t know where to file this amended return since it’s for a tax year that is 23 years ago.  Do I just send the PEB results, the VA letter and an amended return to the irs or is there somewhere specific I have to file?

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Not sure any mmbers here can help you?  unless we have a CPA as a hadit member.? Or Retired IRS Worker?

I was told after 2 years if tax refunds was not claimed within those two years...then no tax refund , but I do not know for sure  its just what I was told.

you may need to contact IRS and ask them or go to a federal building where they work and take a tag to wait to be seen.  or check with your local CPA.

Edited by Buck52
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Great question.  Im not a tax expert, but I do HAVE a tax expert.  The only thing I suggest is you wait until it actually happens, before you try to figure out what to do after it happens.  It may not even be worth your while, but that depends on the dollar amount.  

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The minimum/standard amount for the year I got the severance pay is $1750 so it would definitely be worth the time. I never got the letter (I wasn't receiving VA benefits then) but I think maybe I might venture down to the local IRS office and see what they say.

I'm not patient and a bit of an overanalyzer which is not conducive to this process lol.

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From my experience the statutes of limitations has past. I think I remember it as being six (6) years. You can still check with the IRS but I think I am right. You would have had to fill out a 1040X for that year.  What you can do if you have not already done is submit a request to VA to remove the tax portion of your recoupment. I think I read somewhere that if you are a combat veteran or if you had an honorable discharge after 2001, you maybe still able to get the recoupment waived.  

 

https://themilitarywallet.com/withhold-va-disability-compensation/

VA Disability Compensation Recoupment

This situation is probably the most misunderstood. In short, the VA is required by law to withhold your disability compensation pay if you received separation pay when you separated from the military, then are later awarded disability compensation. This includes medical separation pay (Chapter 61 separations) and voluntary or involuntary separation pay.

Note regarding recouped funds and taxes: The VA will only recoup the after-tax amount from your disability payments (for federal taxes already paid). You have already paid taxes on the amount of severance pay received, so the VA will not withhold beyond the amount of money you actually received.

Disability Separation Pay: The VA is required by law to withhold disability compensation payments for servicemembers who received a disability severance payment when they separated from the military (Chapter 61), if the VA disability compensation is for the same disability. This is to prevent a veteran from receiving duplicate benefits.

Exception: The VA will not deduct compensation pay if the military disability severance pay was received for disabilities incurred in line of duty in a combat zone or incurred during performance of duty in combat-related operations as designated by the Department of Defense (DoD). (Note: this must be a Line of Duty designation by the DoD to be waiverable – this is related to the CRSC rating mentioned above). This exception applies to members who were separated from the Armed Forces under Chapter 61 of title 10, United States Code, on or after January 28, 2008.

 

 

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On 3/24/2020 at 12:56 PM, Guest said:

From my experience the statutes of limitations has past. I think I remember it as being six (6) years. You can still check with the IRS but I think I am right. You would have had to fill out a 1040X for that year.  What you can do if you have not already done is submit a request to VA to remove the tax portion of your recoupment. I think I read somewhere that if you are a combat veteran or if you had an honorable discharge after 2001, you maybe still able to get the recoupment waived.  

 

https://themilitarywallet.com/withhold-va-disability-compensation/

VA Disability Compensation Recoupment

This situation is probably the most misunderstood. In short, the VA is required by law to withhold your disability compensation pay if you received separation pay when you separated from the military, then are later awarded disability compensation. This includes medical separation pay (Chapter 61 separations) and voluntary or involuntary separation pay.

Note regarding recouped funds and taxes: The VA will only recoup the after-tax amount from your disability payments (for federal taxes already paid). You have already paid taxes on the amount of severance pay received, so the VA will not withhold beyond the amount of money you actually received.

Disability Separation Pay: The VA is required by law to withhold disability compensation payments for servicemembers who received a disability severance payment when they separated from the military (Chapter 61), if the VA disability compensation is for the same disability. This is to prevent a veteran from receiving duplicate benefits.

Exception: The VA will not deduct compensation pay if the military disability severance pay was received for disabilities incurred in line of duty in a combat zone or incurred during performance of duty in combat-related operations as designated by the Department of Defense (DoD). (Note: this must be a Line of Duty designation by the DoD to be waiverable – this is related to the CRSC rating mentioned above). This exception applies to members who were separated from the Armed Forces under Chapter 61 of title 10, United States Code, on or after January 28, 2008.

 

 

Not sure why I was not credited for this above post but this is what I posted and what I went through the early part of 2000.  The IRS made me wait an entire year before they sent me a letter stating that I missed my deadline. Notice I like to enlarge my font because the small font bothers my eyes.  Can a moderator change it from a guess post to mine just in case if anyone has any question can ask me. 

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I'm up too late, disregard,

Hamslice

 

 

 

 

Edited by Hamslice
cause I screwed up
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