Bill To End Taxation Of Combat-Injured Vets’ Severance Payments Heads To President

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WASHINGTON (KFSM) — A bill that would end taxation on severance payments from the Department of Defense to combat-injured veterans is heading to the President Obama’s desk after it was passed by the U.S. House and Senate earlier this month.

The Combat-Injured Veterans Tax Fairness Act of 2016 directs DOD to identify veterans who have been separated from service for combat-related injuries and received a severance payment that was improperly taxed by the federal government. It instructs DOD to determine how much the combat-wounded veterans are owed and allow veterans who have been improperly taxed to recover the withheld amounts.

Under federal law, veterans who suffer combat-related injuries and who are separated from the military are not supposed to be taxed on the one-time lump sum disability severance payment they receive from DOD. Unfortunately, taxes on combat-related disability severance payments have nonetheless been withheld from qualifying veterans for a number of years due to the limitations of DOD’s automated payment system. Veterans are typically unaware that their benefits were improperly reduced as a result of DOD’s actions.

U.S. Senators John Boozman (R-AR) and Mark Warner (D-VA) introduced the identical legislation in the Senate in March.

The problem of improper taxation of the severance payments to combat-injured veterans was originally identified by the National Veterans Legal Services Program (NVLSP), a nonprofit veterans organization. NVLSP estimates that over 13,800 veterans may have been denied full severance pay as a result of wrongful taxation, including approximately 165 veterans in Arkansas.