I just wanted to start a new thread on disability severance pay and how it works as it seems many people on here have questions about it, including me, but aren’t getting solid answers. Please provide any input you have on this topic to help others out. What I know about it is you should receive it somewhere around 20 business days after your separation date. If you were rated at 0% for your referred condition they won’t recoup any of the severance pay and I believe I’ve heard of your rates 100% by the VA they won’t recoup any of it either, correct me if I’m wrong. You also won’t be taxed on it if your referred condition is combat related or if you are receiving any monthly compensation from the VA. It is otherwise taxed at 22% Federal tax. If your severance pay is taxed you can receive a refund from DFAS by submitting a claim online at https://www.DFAS.mail/debt and claims/submit claim.html
To submit a refund claim you will need your DD214 (member copy 4), The entire VA Award letter for your disabilities, Separation orders to include amended orders, PEB proceedings form from your branch of service i.e. DA 199 form for Army
You must submit the claim with all documents before December 15th of the year in which the disability severance pay was paid. If you received your severance pay in prior tax years you need to contact the IRS to get things squared away at 1-800-829-1040.
Now some questions I have are:
1. Will I be placed in a higher tax bracket due to the large severance pay lump sum and have to pay additional taxes during tax season? I thought I heard somewhere you can submit something to not be placed in a higher tax bracket as it’s for disability, let me know if you know anything on this.
2. If they recoup the severance pay how much do they take per month? From what I’ve heard they only recoup what your DoD rating is so if you’re 90% VA and 10% DoD they only take whatever the 10% monthly payout is. For example if you’re receiving $2,300 a month for a VA rating of 90% they will only recoup like $150 a month for the 10% DoD rating until they have recouped the full severance pay amount after taxes. Comment if this is wrong or there’s more to it.
I hope we can get a good thread going with some good info to help people out wondering about how severance pay works.
To submit a refund claim you will need your DD214 (member copy 4), The entire VA Award letter for your disabilities, Separation orders to include amended orders, PEB proceedings form from your branch of service i.e. DA 199 form for Army
You must submit the claim with all documents before December 15th of the year in which the disability severance pay was paid. If you received your severance pay in prior tax years you need to contact the IRS to get things squared away at 1-800-829-1040.
Now some questions I have are:
1. Will I be placed in a higher tax bracket due to the large severance pay lump sum and have to pay additional taxes during tax season? I thought I heard somewhere you can submit something to not be placed in a higher tax bracket as it’s for disability, let me know if you know anything on this.
2. If they recoup the severance pay how much do they take per month? From what I’ve heard they only recoup what your DoD rating is so if you’re 90% VA and 10% DoD they only take whatever the 10% monthly payout is. For example if you’re receiving $2,300 a month for a VA rating of 90% they will only recoup like $150 a month for the 10% DoD rating until they have recouped the full severance pay amount after taxes. Comment if this is wrong or there’s more to it.
I hope we can get a good thread going with some good info to help people out wondering about how severance pay works.