Some Veterans Can Now Claim Refund of Taxes Paid on Disability Severance Payments

The Internal Revenue Service is advising certain veterans who received disability severance payments after January 17, 1991, and included that payment as income that they should file Form 1040X, Amended U.S. Individual Income Tax Return, to claim a credit or refund of the overpayment attributable to the disability severance payment. This is a result of the Combat-Injured Veterans Tax Fairness Act passed in 2016.

Amount to Claim
Veterans can submit a claim based on the actual amount of their disability severance payment by completing Form 1040X, carefully following the instructions. However, there is a simplified method. Veterans can choose instead to claim a standard refund amount based on the calendar year (an individual's tax year) in which they received the severance payment. Write "Disability Severance Payment" on line 15 of Form 1040X and enter on lines 15 and 22 the standard refund amount listed below that applies:
• $1,750 for tax years 1991 - 2005
• $2,400 for tax years 2006 - 2010
• $3,200 for tax years 2011 - 2016

Claiming the standard refund amount is the easiest way for veterans to claim a refund, because they do not need to access the original tax return from the year of their lump-sum disability severance payment.