This bill would direct the Dept. of Defense (DOD) to identify severance payments made to combat-injured veterans since January 17, 1991 where taxes were withheld and notify veterans who had taxes improperly withheld so they can recover those funds. Combat-injured veterans would have up to one year after they’re notified about the improper withholding and given instructions for recovering the money to file paperwork with the Internal Revenue Service (IRS) for a credit or refund.
DOD would be required to ensure that money isn’t withheld for tax purposes from DOD severance payments to individuals when those payments aren’t considered gross income.
Under federal law, veterans who suffer combat-related injuries and are separated from the military aren’t supposed to be taxed on the one-time lump sum disability payment they get from DOD as severance pay. Due to an accounting error, over 14,000 veterans were improperly taxed to the tune of $78 million.