As for Severence that is taxed:
This is the information that was provided to me by my PEBLO in order to get Disability Severence Tax Refunded:
Under the current DFAS, and the IRS interpretation of federal law, there are tax advantages you should know about. If your disability falls under one of four categories you are elegible for these benefits. The first three are based on administrative determinations refered to as 10a, b, or c, on DA Form 199, and are made by the Personal Evaluation Board ( PEB ). The fourth is a disability determination made by the VA. You should ask your PEBLO if your disability was designated as either 10a, b, or c in the PEB proceedings. If such a designation was granted DFAS should not take any federal taxes out of your disability severence pay. If you have the tax taken out when awarded either a 10a, b or cdesignation DFAS has instructed that the field finance office is to contact DFAS at
[email protected] to ensure automatic prompt refund of the witheld taxes.
If your PEBLO tells you that the PEB found you inelegible for a 10a, b or c designation, your severence pay will be taxed initially. However, you may still qualify for a tax break if you are awarded a VA disability rating for the same condition that resulted in your medical discharge. For example, if you are found unfit by the PEB for a right knee injury, and, subsequently, the VA also rates that the same right knee, you can apply for a refund of the taxes witheld. To secure your refund, upon receipt of your VA rating, follow the dirrections below.
DFAS can refund all of your severence pay taxes. HOWEVER, AS OF THE DATE OF THIS PAPER, THE IRS HAS NOT OFFICIALLY ENDORSED THE DFAS POSITION THAT YOU ARE ELEGIBLE FOR A FULL REFUND. SPECIFICALLY, THE IRS HAS NOT OFFICIALLY STATED HOW MUCH OF A REFUND YOU ARE ELEGIBLE TO RECIEVE. CONSEQUENTLY, IN THE FUTURE THE IRS COULD CLAIM THAT YOU UNDERPAID YOUR TAXES FOR THE TAX YEAR IN WHICH YOU YOU RECIEVED YOUR REFUND FROM DFAS.
To secure the refund, you must send copies of your seperation orders, DD214, VA award documentation, and the attached sample cover letter to DFAS by fax (317)275-0248 / ATTN: Seperation branch or scan and email to
[email protected].
If you follow the above guidelines, but are not provided a refund within two months of your request, contact the seperation and reenlistment division at DSN 699-5950 / 2829 or commercial: (317)212-2829 or (317)212-5950.
[email protected].
The request, with all necessary documentation, must be recieved by DFAS by 31 DEC of the year in which you recieved your seperation paycheck. If your request does not meet this deadline, DFAS cannot provide you with any refund. DFAS has indicated they will not provide you a corrected W-2 if you do not meet the same calandar year deadline.
If you are not elegible to request a refund from DFAS because of the time limitations, and you have not filed your tax return for that tax year, you may file a tax return and include a copy of the VA award to inform the IRS that the severence pay should not be considered taxable. You should file your federal return with " ST. CLAIR vs. THE UNITED STATES" written across the top of the tax form. If you have already filed your tax return for that tax year you will have to ask the IRS for a refund. BE AWARE THAT, AS OF THE DATE OF THIS PAPER, THE IRS DOES NOT HAVE AN OFFICIAL POSITION ON WHAT PORTION OF YOUR SEVERENCE PAY IS TAX-FREE. CONSEQUENTLY, YOU MAY NOT GET A FULL REFUND. MOREOVER, IN THE FUTURE THE IRS COULD CLAIM THAT YOU UNDERPAID YOUR TAXES FOR THE TAX YEAR IN WHICH YOU RECIEVED YOUR REFUND. In an attempt to secure a refund from the IRS, you must mail to the IRS copies of your federal individual tax return ( or ammended return 1040X, if appropriate - with the ST. CLAIR vs. THE UNITED STATES written on the top ) for the year in which you recieved your severence pay, original IRS Form W-2, VA Disability Award documentation, DD Form 214, seperation orders, and the enclosed sample cover letter 2. Address your request and sample cover letter to your servicing IRS location. This last IRS request is not always known by all IRS employees and sometimes there can be less than complete success in every filing.
Sample cover letter 1-
DEFENSE FINANCE AND ACCOUNTING SERVICE
INDIANAPOLIS CENTER
ATTN: DFAS-PJEC/IN
8899 EAST 56TH STREET
INDIANAPOLIS, IN, 46249-0801
Dear Sir / Ma'am:
I was medically discharged from the US Army / ARNG, on ___________. I was awarded severence pay in the amount of _____________ dollars. My disability severence pay was taxed. This money was witheld for payment to the IRS.
I have now recieved a disability rating from the Veterans Affairs ( VA ) for the same disability for which the Army compensated me, and in the same calendar year that I recieved my severence pay. Therefore, under the provisions of 26 U.S.C. § 104(b)(2), I am elegible for DFAS refund of the taxes witheld.
Enclosed are copies of the following documents to support my request:
• VA Award Documentation
• Seperation Orders
• DD Form 214 ( or 215 )
Please contact me if you require additional information. My current phone number is ( )-----------------. My current address is _____________________________________.
Military Pay Account: ____________________________________
My current banking information is :
Financial Organization:____________________________________
routing:________________________________________________
account:_______________________________________________
Checking ( ) Savings ( )
Your prompt attention to this request is appreciated.
Sample 2 -
INTERNAL REVENUE CENTER
_________________________
_________________________
_____________ _________
Dear Sir / ma'am:
I was medically discharged from the US Army / ARNG, on ___________. I was awarded severence pay in the amount of _____________ dollars. My disability severence pay was taxed. This money was witheld for payment to the IRS in Tax year _____.
I have now recieved a disability rating from the Veterans Affairs ( VA ) for the same disability for which the Army compensated me.
Under the provisions of 26 U.S.C. §104 (a)(4), and 26 U.S.C. §(b)(2) (D), as interpreted by the District Court in St. Clair vs. The United States, Disability severence payments are amounts received for personal injury(ies) and are thus excluded from taxable income. The only caveats are (1) a VA rating for the injury for which severence 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).
As indicated, I am in reciept of a VA rating for the injury for which I was granted severence pay, and I have waived a like amount of my VA disability pay. Therefore, I request a refund of taxes witheld in year _____, the year in which I recieved my severence pay.
Enclosed are copies of the following documents to support my request:
• Individual Federal Tax Return for the year _________ ( the year I recieved my severence pay )
• Original IRS Form W-2
• Corrected IRS Form W-2
• VA Award Documentation
• Seperation Orders
• DD Form 214
Please contact me if you require additional information. My current phone number is ( )_________. My current address is ____________________________________.
Sincerely,
hiope this helps anyone out there to recover their taxed severence~
Mark~