Military retroactive medically retired me and received lumpsum backpay this year. This reducing my child tax credit from $2000 down to $500. How can I change this?

[lisa-moon]

Medical retirement pay from DFAS lumpsum

[Carl]

Was this retroactive retired pay? Or was it retroactive Veterans Disability Pay? It matters.

[lisa-moon]

Retroactive medical retirement pay from DFAS. Medically retired at 30 percent back to 2004.

[Carl]

My apologies, but I can interpret that several ways. DFAS does not pay VA pay. Do you have a letter that basically states you can now consider a percentage or specific amount of the pay you received from DFAS as VA pay, or tax exempt by treating it "as disability pay"? Just trying to confirm, because there is a specific procedure for such a situation. I experienced it myself a few years back.

[lisa-moon]

I already receive vs disability since originally being medically separated from the army. Recently, DFAS changed the seperation to medical retirement.  This past year I received a lumpsum of backpay going back to 2004.  I now receive retirement pay monthly from DFAS, reduced by amount I receive as disabilty pay from VA monthly.

[lisa-moon]

So yes, DFAS states the amount that is VA waiver on the monthly statement.

[lisa-moon]

The problem is that the lumpsum pushes my total income to a much higher amount that then reduced my child tax credit this year for 2 kids by 1500.

[Carl]

Ah okay. The procedure you need to follow is at https://www.irs.gov/individuals/military/special-tax-considerations-for-veterans

Note that you will have to mail your return this year in order to do this. If it's retroactive back to previous year or years, then you'll need to file an amended return for each year. Note that it's important to mail each return in it's own separate envelope too, per IRS guidelines.

[lisa-moon]

Thanks for your help but the link you included doesn't seem to apply to my situation.  My percent from VA is the same.  The taxing of the backpay from DFAS is not in question.  I'm just not sure how to not have the child tax credit reduced because the extra lumpsum payment  artificially inflated my income for last year.

[Carl]

Apparently your situation was different from what I experienced, and you actually did receive additional income in 2017, that was actual back pay. Wish I could help with that, but unfortunately I can't. The only thing I can note is that if you did in fact receive money in 2017 that was back pay for prior years, then technically your 2017 in isn't "artificially" inflated. It is inflated. But it's not artificial since you did receive the money in 2017, regardless of the year it was for.
You should be able to consult with base legal at your nearest military installation on this matter, and I'd be interested in what you learn. This time of year practically all base legal offices have additional staff specifically trained for military tax situations such as yours.
If there is an RAO (Retiree's Activity Office) in your vicinity, that would probably be the better place to start, since those folks would most likely be more knowledgeable in military retired tax situations.
I would expect there to be some provision where you can "spread out" the back pay over the next 10 years or so. But I'm not sure if the TTX program can handle such a situation.

[lisa-moon]

Thank you very mucj.

[lisa-moon]

Much

[quinatac]

Lisa-Moon,

    A bit off topic, but how did you get your medical retirement back pay? I was medically retired back in 1992 with 70% DOD disability but I don't get retired pay or retired benefits.

Thanks in advance,

Q

[VolvoGirl]

They might not see your post.  This is a very old thread, maybe 2 years old.  This is a new forum layout. Some posts that have June 2019 dates are really older posts from the old forum that got moved over. So they might be for prior years and not current info. When they migrated over the dates got changed to June 2019. And the screen shots got deleted. 

[AttilaTheChris]

Thanks. That helped me. I had messaged her, thinking that her issue was recent. I appreciate it.