medial discharge with severence pay and VA pay


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Im ANG and im a getting medical discharge with severence pay with a 20% rating on my shoulder, i currently allready have a 60%VA rating, with 20% of that being for my shoulder. the way it was explained to me is i will get a lump sum severance pay, the will be taxed, but since i have a va rating for the same issue the taxes will be refunded back to me? and then the 20% rating amount, about $280, will be deducted from my monthly VA disability pay until my severence pay is paid back?


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DoD 7000.14-R Financial Management Regulation Volume 7A, Chapter 35
Taxability and Withholding
A. General. Disability severance pay is normally taxable income. However, it is not subject to tax withholding or reporting if at least one of the following two conditions exists:

. The entitlement resulted from combat-related injury or illness, as determined by the Secretary of the Military Department concerned, which happens as a result of any of the following activities:
a. As a direct result of armed conflict;
b. While performing extra-hazardous service, even if the service does not directly involve combat;
c. Under conditions simulating war, including maneuvers or training; or
d. By an instrumentality of war, such as weapons; or

2. The member is entitled to disability compensation as determined by the VA or has received a proposed disability rating from the VA at the time of separation through the Integrated Disability Evaluation System.

It is my understanding that the DFAS will pay the taxes withheld if the "claim" is made during the same calendar year as the payment. Otherwise, it become an IRS issue.
Here is a link to a related tax discussion on a severance pay adventure: Taxes --->LINK


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