Disability severance pay

steaminbeamin

PEB Forum Regular Member
Registered Member
Is disability severance pay taxed if the VA rated the disability causing separation as service connected?

Looking to see if someone could provide where to find written guidance that states this.

I’m hearing the taxed amount can be refunded but my finance office is not helpful/unfamiliar.
 
Is disability severance pay taxed if the VA rated the disability causing separation as service connected?

Looking to see if someone could provide where to find written guidance that states this.

I’m hearing the taxed amount can be refunded but my finance office is not helpful/unfamiliar.

It shouldn't be. Here is a link:
http://www.pebforum.com/resources/disability-tax-refund-info-paper.36/

Also, read this article:
http://www.pebforum.com/threads/goo...y-qualify-for-this-tax-refund-windfall.42834/
 
Source/Background/Authority.

"Under the provisions of 26 U.S.C. § 104(a)(4), and 26 U.S.C. § 104(b)(2) (D), as interpreted by the District Court in St. Clair v. United States, disability severance payments are amounts received for personal injury(ies) and are thus excludable from taxable income. The only caveats are (1) a VA rating for the injury for which severance pay was granted and (2) a waiver of an equivalent amount of VA disability pay (See IRS “Action on Decision”, #cc-1992-006, distributed 19 Dec 1991). "
 
Thank you.
Anyone know why the caveat/caution to
#1 is?
Situation would be severance pay for a VA rated disability. I’m understanding that it will be initially taxed but situation qualifies for a tax refund from DFAS.
 
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