If you got a refund of the tax withheld, you are half-way there. Now you have to deal with the Form W-2 that DFAS sent to the IRS.
First, you have to report the Form W-2 on your return - the IRS got it, so you have to report it on your return.
Then, go to the Other Reportable Income interview, the very last interview in Wages and Income(Federal Taxes tab > Wages & Income category > Less Common Income subcategory > Miscellaneous Income sub-subcategory). Enter the full amount of your severance pay (i.e. not reduced by the income taxes withheld) as a negative number (in parentheses)
This will tell the IRS that you are subtracting that amount from your income. Describe the entry as Military Severance Reclassified as Disability.
You MUST send in the supporting documentation listed below, with your return. Since you correcting this in the same tax year the payment was received, you will have to print and file the tax return by mail.
Paperwork you will need for either option.
· Individual Federal Tax Return for the year in which you received your severance pay (N/A if this is the first tax filing since getting the severance pay)
· Original IRS Form W-2 (some say you can get a corrected W-2 from DFAS, but that is either not possible or not worth the effort or delay).)
· VA award documentation
· Separation orders
· DD Form 214 stating your severance pay amount before taxes
Send copies with your return to the IRS; send certified mail, return receipt requested to the address listed in your TurboTax filing instructions.
