Government affairs

Legislative Updates

Obama signs Veterans Tax Fairness Act into law

On Dec. 16, President Obama signed into law the Combat-Injured Veterans Tax Fairness Act of 2017 (H.R. 5015 and S. 2712), introduced in the House by Rep. David Rouzer (R-NC) and the Senate by Sens. Mark Warner (D-VA) and John Boozman (R-AR). The bill directs the Department of Defense (DoD) to restore nearly $78 million in improper tax withholdings from individuals separated from service due to combat-related injuries.

Previously, federal law prohibited from being taxed severance payments for veterans with combat-related injuries. Rouzer said that because of wrongful taxation, however, the DoD denied more than 13,000 veterans full severance pay due to “limitations” in its accounting system. Veterans affected by this improper tax could have filed an amended tax return with the Internal Revenue Service, but many such veterans already were outside the three-year period that allowed for amended tax returns to be submitted. It’s estimated that nearly $78 million in total was improperly withheld.

The Combat-Injured Veterans Tax Fairness Act directs DoD to identify veterans who have been separated from service for combat-related injuries and had taxes withheld from their severance payments, to determine how much the veterans are owed, and to allow veterans who have been improperly taxed to recover the withheld amounts.

“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,” Warner said in a statement. “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.”

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