topic Glad I could help! in Tax help for military filers

Disability severance pay military

coriganbemis — Thu, 06 Jun 2019 05:39:08 GMT

I was medically separated from the military and my severance pay was taxed. The VA rated my disability therefore my severance pay should not be taxed? How do I file accordingly to recoup my taxed severance pay?

If you can, please edit the subject of your question to "...

ToddL — Thu, 06 Jun 2019 05:39:10 GMT

If you can, please edit the subject of your question to "Military Disability Severance Pay", This will help others with the same problem to find these instructions.

It will not let me enter the payment in parenthesis. The...

j-kucinski — Thu, 06 Jun 2019 05:39:11 GMT

It will not let me enter the payment in parenthesis. The screenshot below is outdated. Is there another way to enter this?

I've made a minor update. Just enter as negative number,...

ToddL — Thu, 06 Jun 2019 05:39:12 GMT

I've made a minor update. Just enter as negative number, using a minus sign. I've added a 2016 screen that shows it works. I used the 2014 screen before because I only have 2016 Self-employed.

Thank you. I will try that. I tried the old direction and...

j-kucinski — Thu, 06 Jun 2019 05:39:14 GMT

Thank you. I will try that. I tried the old direction and it would not let me enter a negative number. It stated enter a value between 0 and something.

I just tried it this morning, so if you run into a proble...

ToddL — Thu, 06 Jun 2019 05:39:14 GMT

I just tried it this morning, so if you run into a problem, let me know.

I'm pretty sure I was entering it the wrong section. I no...

j-kucinski — Thu, 06 Jun 2019 05:39:16 GMT

I'm pretty sure I was entering it the wrong section. I now entered it in Miscellaneous Income, 1099-A, 1099-C and it looked very close to the screen shots and it allowed me to enter a negative number and my refund jumped way up and now looks correct. Thank you for the help.

Glad I could help!

ToddL — Thu, 06 Jun 2019 05:39:17 GMT

Glad I could help!

Is there nothing that needs to be done on the state retur...

linda-brewer — Thu, 06 Jun 2019 05:39:20 GMT

Is there nothing that needs to be done on the state return for this?

Good point. If amending, the state return should change a...

ToddL — Thu, 06 Jun 2019 05:39:22 GMT

Good point. If amending, the state return should change as well but I should emphasize that in an edit tomorrow. If doing it in the current tax year, it should flow automatically

The St. Clair sample attached has incorrect content.

linda-brewer — Thu, 06 Jun 2019 05:39:22 GMT

The St. Clair sample attached has incorrect content.

Fixed, thanks!

ToddL — Thu, 06 Jun 2019 05:39:24 GMT

Fixed, thanks!

You can recoup the taxes DFAS withheld on your disability...

ToddL — Thu, 06 Jun 2019 05:39:25 GMT

You can recoup the taxes DFAS withheld on your disability severance pay. Unfortunately the process is a bit involved, but remember this involves both DFAS and the IRS.

If you receive a lump-sum disability severance payment and are later awarded VA disability benefits, you can exclude 100% of the severance benefit from your income (under the provisions of 26 USC 104, see also Publication 17 (2015), Your Federal Income Tax).

In order for the money to become tax-free, you must have a VA rating for the same disability that led to your separation.

There are TWO ways to get your money back, but you must make sure you use the right one...

1. You can get the money back from DFAS if you act in time. You do this by calling the Separation and Reenlistment Division at DSN 699-7731/7027/6129/6142 or commercial 317-510-7731/7027/6129/6142. However, this can ONLY be done before 31 December in the year you receive the severance payment, but no sooner than 20 business days of receiving payment. After December 31, the taxed money goes to the IRS, so you must use option number 2.

2. If you did not meet the deadline in the above option, then you request the tax money back from the IRS. If you haven’t filed your tax return for the year in which you received the disability severance, you can make the correction on the current tax return. If you have already filed your tax return for the year in which you received the disability severance, you will have to file an amended return. You have three years from the date the original return was due (including extensions) or filed (if later than the due date) to amend your return. In both cases, you enter the correction in the same place.

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 (use "minus" sign).

This will tell the IRS that you are subtracting that amount from your income. Describe the entry as Military Severance Reclassified as Disability (see sample screenshot).

You MUST send in the supporting documentation listed below, with your return. If correcting this in the same tax year the payment was received, you will have to print and file the tax return by mail; amended returns always have to be mailed.

Paperwork you will need for either option.

· Unless this is the first tax filing since getting the severance pay, you need to include a copy of the Individual Federal Tax Return for the year in which you received your 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

If you are amending a prior year return, include a cover letter ("St. Clair" letter). A sample format is attached.

Send copies with your return to the IRS; send certified mail, return receipt requested to the address listed in your TurboTax filing instructions.

(If you encounter any issues, please update this post with a "Comment" and provide details).

Finally, if you are amending for previous tax years, don't forget your state returns - they probably have some of your money, too!

Re: Disability severance pay military

Mattnneb — Sun, 22 Sep 2019 17:26:00 GMT

Has anyone filed a claim at the state level with the St. Clair Claim. If so, did you get interest awarded on your claim? I'm in Nebraska.

Re: Disability severance pay military

Bjade1234 — Wed, 04 Dec 2019 19:54:54 GMT

I was medically discharged from the Air Force September 27th of this 2019. I received a total of 40% for disability. I also received severance pay. I know that I qualify to get back my taxes that were taken from my severance pay. However, I tried to call the numbers provided with no luck. I would like to take care of it prior to the end of the year. Any help? I would greatly appreciate it!

Re: Disability severance pay military

Vanessa A — Mon, 09 Dec 2019 14:42:38 GMT

The only way to get taxes withheld back is to file a tax return. You cannot file a return prior to the end of the year. You will need to wait to get your refund of excess taxes withheld until you file your 2019 taxes in January.

Re: Disability severance pay military

Carl — Thu, 19 Dec 2019 00:41:28 GMT

There's no such thing as "disability severance pay". It's either severance pay, or disability pay. Severance pay is 100% taxable income. Period. However, in a case where disability pay was retroactive, the letter you got from the VA should give you a "retroactive back to" date. So if your severance pay was paid before that date, it's still taxable income. If paid after that date, then it "converts" to disability pay and you can treat it as such. Finally, sometimes the letter from the VA will specifically state that it includes severance pay regardless of when that severance was paid.

Re: You can recoup the taxes DFAS withheld on your disability...

davisjaron — Tue, 28 Jan 2020 15:10:06 GMT

Here is my problem, the VA paid over $7,000 in taxes on my disability severance pay just this past year (2019), so this will be my first tax return since it was paid, so I can't go the 1040x route.

When I follow the instructions to report my severance pay as a negative number in other reportable income, it only calculates roughly $3,000 in my return.

How do I file this so that I receive the full amount paid in return? I've looked everywhere and can't seem to figure it out.

The real issue here is that because this is non-taxable income, the VA is going to recoup the full amount paid to me. Therefore if I cannot recoup the taxes improperly paid, I end up losing $4,000 out of my own pocket because the government screwed up and paid themselves extra. Sounds like a scam to me.

Re: You can recoup the taxes DFAS withheld on your disability...

MaryK4 — Tue, 28 Jan 2020 22:09:48 GMT

Did you have other income? Did you receive a Form 1099-R? @davisjaron

Re: You can recoup the taxes DFAS withheld on your disability...

davisjaron — Thu, 30 Jan 2020 15:07:25 GMT

I did not receive a 1099R. I spoke to a CPA here on TurboTax about it as well as DFAS. DFAS is working on the 1099R now, they somehow forgot to send it to me -_-... scam.

The TurboTax CPA told me to input the information from the 1099R or W2, then use the instructions above to report negative income. When I tested that out, it worked.

I apprecate your help.