Severance pay taxes

Ullose272

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I recently recieve my severance pay taxed, i had my local finance submit a CMS case to get my taxes refunded to me because i have a VA rating for the same thing i was separated with severance for, the case came back as closed because it wasnt combat related. I feel like i still am elidgable because i have the va rating regardless of if ut was combat related? Am i right?
 

RonG

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I recently recieve my severance pay taxed, i had my local finance submit a CMS case to get my taxes refunded to me because i have a VA rating for the same thing i was separated with severance for, the case came back as closed because it wasnt combat related. I feel like i still am elidgable because i have the va rating regardless of if ut was combat related? Am i right?
1. 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 exist:

  • As a direct result of armed conflict
  • While performing in extra-hazardous service, even if the service does not directly involve combat
  • Under conditions simulating war, including maneuvers or training; or
  • By an instrumentality of war, such as weapons; or
2. The Service 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.

A Service member may request refund of taxes withheld from the gross taxable amount of their disability severance pay payment from DFAS if notification of disability compensation from the VA is received in the same tax year in which the member received disability severance pay.

A refund request must include documentation evidencing the VA’s award of disability compensation and must be received and processed by DFAS on or before December 31st of the year in which the disability severance pay payment was paid. If a refund is processed before December 31st, but after the Military Payroll Systems end of the year cut off (typically around December 20th), a corrected IRS Form W2c may be issued by DFAS.
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You might want to become familar with the following:
M21-1, Part III, Subpart v, Chapter 4, Section B - Recoupment of Separation Benefits
--->LINK



III.v.4.B.3.b. General Policies Regarding Withholdings to Recoup Disability Severance PayGenerally, if a Veteran received disability severance pay, VA must withhold from his/her monthly compensation an amount equal to the monthly compensation payable for the disability(ies) for which the Veteran received disability severance pay. VA continues to withhold this amount until it has recouped the amount specified in M21-1, Part III, Subpart v, 4.B.2.d.

Important:
  • The monthly withholding may never exceed the monthly amount of compensation payable based on the initial, compensable rating, as defined in M21-1, Part III, Subpart v, 4.B.3.c, that VA assigns the severance-pay disability(ies).
  • If a Veteran has multiple, severance-pay disabilities, each rated 0-percent disabling, and VA assigns a 10-percent disability rating to them under 38 CFR 3.324, no withholding is necessary for these disabilities until VA assigns a compensable rating to one or more of them, individually.
  • Withhold the additional benefits payable because of application of the bilateral factor if
    • the initial, compensable rating included application of the bilateral factor, and
    • entitlement to the bilateral factor was based exclusively on severance-pay disabilities.

My interpretation: If one has a zero rating from the DoD and the VA does not award a percentage of 10% or more to the same DoD rating, then no recoupment is warranted.
If one has a zero rating from the DoD and the VA does award a percentage of 10% or more to the same DoD rating, then recoupment is warranted.

When in doubt, contact the VA or a veterans service officer.

Ron
 

Ullose272

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1. 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 exist:

  • As a direct result of armed conflict
  • While performing in extra-hazardous service, even if the service does not directly involve combat
  • Under conditions simulating war, including maneuvers or training; or
  • By an instrumentality of war, such as weapons; or
2. The Service 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.

A Service member may request refund of taxes withheld from the gross taxable amount of their disability severance pay payment from DFAS if notification of disability compensation from the VA is received in the same tax year in which the member received disability severance pay.

A refund request must include documentation evidencing the VA’s award of disability compensation and must be received and processed by DFAS on or before December 31st of the year in which the disability severance pay payment was paid. If a refund is processed before December 31st, but after the Military Payroll Systems end of the year cut off (typically around December 20th), a corrected IRS Form W2c may be issued by DFAS.
-------------
You might want to become familar with the following:
M21-1, Part III, Subpart v, Chapter 4, Section B - Recoupment of Separation Benefits
--->LINK



III.v.4.B.3.b. General Policies Regarding Withholdings to Recoup Disability Severance PayGenerally, if a Veteran received disability severance pay, VA must withhold from his/her monthly compensation an amount equal to the monthly compensation payable for the disability(ies) for which the Veteran received disability severance pay. VA continues to withhold this amount until it has recouped the amount specified in M21-1, Part III, Subpart v, 4.B.2.d.

Important:
  • The monthly withholding may never exceed the monthly amount of compensation payable based on the initial, compensable rating, as defined in M21-1, Part III, Subpart v, 4.B.3.c, that VA assigns the severance-pay disability(ies).
  • If a Veteran has multiple, severance-pay disabilities, each rated 0-percent disabling, and VA assigns a 10-percent disability rating to them under 38 CFR 3.324, no withholding is necessary for these disabilities until VA assigns a compensable rating to one or more of them, individually.
  • Withhold the additional benefits payable because of application of the bilateral factor if
    • the initial, compensable rating included application of the bilateral factor, and
    • entitlement to the bilateral factor was based exclusively on severance-pay disabilities.

My interpretation: If one has a zero rating from the DoD and the VA does not award a percentage of 10% or more to the same DoD rating, then no recoupment is warranted.
If one has a zero rating from the DoD and the VA does award a percentage of 10% or more to the same DoD rating, then recoupment is warranted.

When in doubt, contact the VA or a veterans service officer.

Ron
I have a dod rating of 20% and a va rating of 20% for that injury, so i would think that i should not be taxed on the severance pay because i will be paying this back via my VA disability that is not taxed.
 

RonG

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I have a dod rating of 20% and a va rating of 20% for that injury, so i would think that i should not be taxed on the severance pay because i will be paying this back via my VA disability that is not taxed.
It is my understanding from reading a table in M21-1, the VA will recoup the AFTER-tax amount.

Ron
 

RonG

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Thank you.

1. The DFAS collected taxes.

2. The VA is going to recoup the severance at the after taxes rate, per M21-1.

3. Item 1 plus item 2 = amount of severance; the amount you are not entitled to as the result of receipt of VA comp.

4. You can contact the VA and/or the DFAS about this matter.

Good luck,

Ron
 

D1234

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I have a kind of a question I’ve been wondering, but can you decline a medical retirement for severance pay?
 

Ullose272

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I have a kind of a question I’ve been wondering, but can you decline a medical retirement for severance pay?
I dont think you can, the severance was nice to get get a lump sum, but i beleive there are some perks to being retired
 

Lilcop2002

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Update, DFAS gave me my taxes back and coded as not taxable


I'm late to the game but how did you submit this and get it approved? I've done the ASKDFAS and phone call routes. With both avenues I keep getting conflicting info.

Thanks!
 

RonG

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Hello @Ullose272

Here is the DFAS LINK <--- to their info on the subject. It also includes links to the IRS site. There are many discussions in the PEB Forum on this subject. I recommend you use rhe SEARCH feature at the upper right of this page and enter: Severance Pay tax refund or Severance Pay Taxes

That refund would come from the IRS. I believe there was another procedure where DFAS made the refund.

Edited to add:
This is the refund from DFAS info:

Disability Severance Pay​

If you paid taxes on your disability severance pay, you could be due a refund. A refund is awarded in the same calendar year in which a military member received disability severance pay. To obtain a refund from us you must submit the following documents to us before December 15th if the year in which the disability severance pay was paid.
  • DD For 214 (member copy 4) Submit Disability Severance Pay forms online
  • Veterans Affairs Award letter (the Award Letter in its entirety)
  • Separation Orders
  • Physical Evaluation Board (PEB) Proceedings Form from your applicable service.
    • Army - DA 199
    • Air Force - AF 100
    • Navy (does not have an identifiying form number)
We cannot issue refunds for prior tax years. If you received your funds in prior tax years please contact the Internal Revenue Service at 800-829-1040.
If you received a refund from us and believe you didn't get the correct amount, please provide us with written documentation including a hand written signature.

-----
There was no indication on the DFAS page that showed the procedure immediately preceding this paragraph had expired.
Here is the link: Defense Finance and Accounting Service > debtandclaims > submitclaim <---LINK


Good luck,
Ron
 
Last edited:

Ullose272

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I'm late to the game but how did you submit this and get it approved? I've done the ASKDFAS and phone call routes. With both avenues I keep getting conflicting info.

Thanks!
I had Finance at my base submit a CMS case, but you can also do it through the DFAS site here Defense Finance and Accounting Service > debtandclaims > submitclaim
You will need your dd214, the form you got saying you the percentage/condition you were separated for, and your VA diability letter for the same condition.
I actually did bothe the CMS case and the online claim through dfas, the CMS case was completed first after about 70 days, and the online claim they closed it after about 100 days. So it takes a while.

If you submit it during the same calander year the money will come back from DFAS, if its the year after it will be from the IRS, unfortunately this late in the year you might have to get it through the IRS, i dont know that process
 

Lilcop2002

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Yeah... tried through DFAS/CMS case but they keep telling me it has to be combat related. I've called and submitted the claim online and even requested for Ombudsman escalation. All are claiming it HAS to be combat related even after sending them the law and several official (DFAS/IRS/DOD/VA/ARMY/USAF) links on the policy and law.

I called ARPC the other day and requested their assistance based on DFAS advice. It's been a C.F. this whole year.
 

Ullose272

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Yeah... tried through DFAS/CMS case but they keep telling me it has to be combat related. I've called and submitted the claim online and even requested for Ombudsman escalation. All are claiming it HAS to be combat related even after sending them the law and several official (DFAS/IRS/DOD/VA/ARMY/USAF) links on the policy and law.

I called ARPC the other day and requested their assistance based on DFAS advice. It's been a C.F. this whole year.
I sent them the actual regulation, showing them exactly where it is located, along with all my paper work from the VA and my separation. My base submitted it for me, the cms case person at DFAS had to transfer to another person then it was approved a couple months later. Whoever "they" are that you are talking to, they are wrong. It clearly states in the regulation that its combat related OR if you have a VA rating for the same thing you were separated for
 

Ullose272

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PEB Forum Veteran
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Yeah... tried through DFAS/CMS case but they keep telling me it has to be combat related. I've called and submitted the claim online and even requested for Ombudsman escalation. All are claiming it HAS to be combat related even after sending them the law and several official (DFAS/IRS/DOD/VA/ARMY/USAF) links on the policy and law.

I called ARPC the other day and requested their assistance based on DFAS advice. It's been a C.F. this whole year.
Ill add that i had to send a second CMS case with all that, the first they told me the same about it having to be combat related. The second time i gave them all that info, you really have to hold their hand.
 

Lilcop2002

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Registered Member
I had to hold their hand during my MEB, severance pay, and now for the tax refund. Thankfully I'm not hurting for the cash but it shouldn't be so danged hard to get what is mine.

At this point, all of my submissions were tracked online with time and date stamps. It'll make the Congressional Complaint easier. Should it come to it but with verbiage like this, it's no surprise when I have to submit it:

"...I personally do not work the DSP Cases/Issues, but I have worked closely with the Air Force on DSP cases. They (Air Force DSP) have always stated by Law, that they cannot refund the DSP Taxes, as they stated in your CMS Case, because of the Separation Code JEB. There have been others with the same Separation Code JEB, who were also Non-Combat Related and disagreed with their decision, but the taxes were never refunded after they put inquiries into it..."
 

Ullose272

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PEB Forum Veteran
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I had to hold their hand during my MEB, severance pay, and now for the tax refund. Thankfully I'm not hurting for the cash but it shouldn't be so danged hard to get what is mine.

At this point, all of my submissions were tracked online with time and date stamps. It'll make the Congressional Complaint easier. Should it come to it but with verbiage like this, it's no surprise when I have to submit it:

"...I personally do not work the DSP Cases/Issues, but I have worked closely with the Air Force on DSP cases. They (Air Force DSP) have always stated by Law, that they cannot refund the DSP Taxes, as they stated in your CMS Case, because of the Separation Code JEB. There have been others with the same Separation Code JEB, who were also Non-Combat Related and disagreed with their decision, but the taxes were never refunded after they put inquiries into it..."
Yep they said the same BS about JEB, they are wrong. Someone there knows whats correct, they git me mine
 
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