WASHINGTON – U.S. Senators John Boozman (R-AR) and Mark Warner (D-VA) today introduced bipartisan legislation to ensure that veterans who suffer service-ending combat-related injuries are not taxed on the severance payment they receive from the Department of Defense (DOD).
Under federal law, veterans who suffer combat-related injuries and who are separated from the military are not supposed to be taxed on the one-time lump sum disability severance payment they receive from DOD.
Unfortunately, taxes on combat-related disability severance payments have nonetheless been withheld from qualifying veterans for a number of years due to the limitations of DOD’s automated payment system. Veterans are typically unaware that their benefits were improperly reduced as a result of DOD’s actions.
The Combat-Injured Veterans Tax Fairness Act of 2016, introduced by Boozman and Warner, corrects this problem by directing DOD to identify veterans who have been separated from service for combat-related injuries and received a severance payment. The bill instructs DOD to determine how much the combat-wounded veterans are owed and allow veterans who have been improperly taxed to recover the withheld amounts.
“It is absolutely wrong to deprive combat-injured veterans of their full severance upon separation. This has to be corrected. DOD has unjustly withheld taxes despite clearly-written federal law and a court opinion to the contrary. We have a responsibility to right this wrong and ensure that our nation’s wounded veterans receive the benefits they are rightfully due,” Boozman said.
“The intent of Congress, federal law and Department of Defense policy are all very clear: Service members separated as a result of combat-related injuries are not to have their severance pay taxed. It’s unbelievable that Congress has to act in order to ensure that the law is followed and that veterans who have already sacrificed so much receive every penny of their severance. Our legislation requires the Department of Defense to identify and notify individuals whose payments were reduced by improperly withheld taxes, and also extends the statute of limitations to ensure that those who were wronged long ago can still receive their full and proper payments,” Warner said.
The problem was originally identified by the National Veterans Legal Services Program (NVLSP), an independent, nonprofit veterans service organization that has served active duty military personnel and veterans since 1980.
“Most troubling is that we learned the government had known about this problem for decades yet continued to take this money from thousands of disabled veterans. After exploring all legal options, we concluded that the only large-scale fix to this problem was through legislation, and we are so grateful that Senator Boozman and Senator Warner are sponsoring this bill. The sad truth is that the government essentially stole $78 million dollars from disabled combat veterans because of an accounting problem it’s known about for years. To help undo the harm caused by this egregious oversight, we hope this legislation is passed quickly,” Tom Moore, attorney and manager of the Lawyers Serving Warriors project at NVLSP, said.
NVLSP estimates that over 13,800 veterans potentially have been denied full severance pay as a result of wrongful taxation, including 165 veterans in Arkansas and 720 veterans in Virginia.
While introducing the bill, Boozman and Warner highlighted the financial burdens placed on two of their constituents—Brandon Davis of Greenwood, Arkansas and Leon Hill of Norfolk, Virginia.
“I was discharged from the Army due to combat-related injuries in 2005, a year after I was engaged in several enemy attacks during a deployment to Iraq. While I was going through the medical discharge process, I recall hearing that there was a computer problem related to disability severance payments, but no one ever explained what I needed to do to recover the money that was taken from me,” Davis said. “The government took eight thousand dollars from me without explaining that I could have recovered all of this money. This money would have helped me and my family as we adjusted to life after being discharged from the military. Because eleven years have passed since the money was taken, now I have no way to get it back unless this legislation is passed.”
“The government took more than $11,000 from my disability severance check after I was involuntarily separated from the Navy due to combat-related disabilities,” Hill said. “During my medical discharge proceedings, I received very little guidance. No one ever explained the tax issue to me. I didn’t even know I had been shortchanged until Mr. Moore from NVLSP called me to explain the issue. Now I understand that there is no way to recover the money that was taken from me without this legislation.”
Estimates for affected veterans in other states available by request.