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The House of Representatives passed a bill authored by Congressman David Rouzer yesterday to provide every veteran who has had their severance payments wrongfully taxed the opportunity to recover the payment in full.  H.R. 5015,  the Combat-Injured Veterans Tax Fairness Act of 2016, is estimated to impact nearly 14,000 veterans - including more than 550 veterans from North Carolina – who were wrongfully taxed on their severance packages.

Under federal law, veterans who suffer combat-related injuries and who are separated from the military are not supposed to have any taxes withheld from their one-time lump sum disability severance payment, which they receive from the Department of Defense (DoD.)  However, due to an accounting error, that was not the case for an estimated 14,000 veterans.  H.R. 5015 corrects this problem by instructing the DoD to identify those who were wrongfully taxed so that they can be reimbursed. 

“Our soldiers, sailors, airmen and Marines risk their lives every day to protect our freedoms, our values and our republic. The revelation that there are thousands of veterans who did not receive their full disability severance pay is unacceptable.  This legislation is a common-sense solution to ensure that these veterans who had their severance payment wrongfully taxed will receive every penny that they are rightfully owed.  These veterans deserve no less for their service and sacrifice to our nation,” said Congressman Rouzer.

This problem was originally identified by the National Veterans Legal Services Program (NVLSP), an independent, nonprofit veterans service organization that has served active duty military personnel and veterans since 1980.  NVLSP estimates that nearly 14,000 veterans have been denied full severance pay as a result of wrongful taxation, including more than 500 veterans in North Carolina.

BACKGROUND ON THE NEED FOR THE LEGISLATION:?  One-time lump sum disability severance payments to active duty service members have been excluded from taxable income since a 1991 court ruling. This exclusion has been codified into the Department of Defense’s Financial Management Regulation, and also clarified in regulations used by the service branches. Due to limitations in its accounting system, the Defense Finance and Accounting Service (DFAS) knowingly took “tax payments” from combat disabled service members. To recoup wrongfully withheld funds, veterans could have filed an amended tax return with the Internal Revenue Service, but most had no idea that their payment had been erroneously taxed.  As a result, thousands of veterans affected are outside of the three-year period in which they can file an amended tax return to recoup this money. Only legislation passed by Congress and signed into law by the President can correct this injustice.

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