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DOD illegally took taxes from VA benefits for a quarter century

When veterans who were injured in combat leave the military, they are given a lump-sum disability payment upon their separation. Between 1991 and 2016 - nearly a quarter of a century - the Department of Defense (DOD) has withheld federal taxes from payments to as many as 133,000 combat-injured veterans. Such withholding, however, is contrary to federal law: Lump sum veterans' disability payments were supposed to be tax-free.

In an attempt to rectify the situation, Congress passed the Combat-Injured Veterans Tax Fairness Act in 2016. The law directed DOD to identify the service personnel whose veterans' benefits had been improperly taxed. As part of their audit, DOD identified more than 133,000 veterans who could be entitled to a refund under the law.

Veterans who are potentially eligible should receive a notice from DOD in 2018. The notice will inform them how much they are owed and how to go about applying for a refund from the IRS. Once they receive the notice, recipients only have one year to submit a claim for a refund of the federal taxes that were improperly withheld from their disability benefits.

This DOD mistake persisted for a quarter century and took money out of the pockets of unsuspecting disable veterans and their families. It simply underscores how disorganized the Veterans' Affairs (VA) bureaucracy can be. Although the process for claiming VA benefits has become more streamlined over the last decade, it is still no walk in the park. Anyone who has a concern about VA benefits, whether submitting a claim for the first time or ensuring that they are receiving the amount to which they are entitled, should seek the help of an attorney who is experienced with the VA benefits claims process.

Source:, "Over 133,000 veterans who got military disability are due tax refunds," Jim Absher, Feb. 8, 2018

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