Diasbility Severenace Pay Tax Question

benjcbc

benjcbc

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I was medically separated from the Air Force with a DOD rating of 10%, and VA of 70%. I received my severance pay the day after my separation date of 6 January 2020, which was much earlier than I expected. The total received was about 20% less than what my severance should have been using the base pay x years of service x 2 rule. As I am entitled to VA disability, I was under the impression this should have been tax free; however, I contacted my losing base's finance office, and was told the taxes were taken out. I'm trying to figure out if I am entitled to the full gross income, and, if so, what I have to do to claim this, as I won't be able to file 2020's taxes for another year.

Thank you in advance,
- Ben.
 
benjcbc said:
Thank you for the information
Click to expand...
Re: "As I am entitled to VA disability, I was under the impression this should have been tax free; however, I contacted my losing base's finance office, and was told the taxes were taken out. "

See reference to : DoD 7000.14-R Financial Management Regulation Volume 7A, Chapter 35 * July 2013 later in this thread.


[nontaxable]
"OR

3. The member has official notification from the VA approving entitlement to disability compensation for the same illness or injury that caused the entitlement to disability severance pay."

LINK to reference <----

Ron
 
benjcbc said:
I was medically separated from the Air Force with a DOD rating of 10%, and VA of 70%. I received my severance pay the day after my separation date of 6 January 2020, which was much earlier than I expected. The total received was about 20% less than what my severance should have been using the base pay x years of service x 2 rule. As I am entitled to VA disability, I was under the impression this should have been tax free; however, I contacted my losing base's finance office, and was told the taxes were taken out. I'm trying to figure out if I am entitled to the full gross income, and, if so, what I have to do to claim this, as I won't be able to file 2020's taxes for another year.

Thank you in advance,
- Ben.
Click to expand...

Technically it will be tax free, as long as the VA rates you for the same DC when your ratings get finalized. DFAS will be able to refund you since it is so early in the year. Contact DFAS after your ratings are finalized if they do not refund you automatically in 60 days or so after.
 
As gsfowler mentioned:

Reference: DoD 7000.14-R Financial Management Regulation Volume 7A, Chapter 35 * July 2013

350404. 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 three conditions exists:
1. On September 24, 1975, the individual was either a member of a Uniformed Service or was under a binding written commitment to become a member.
2. The entitlement resulted from combat-related injury or illness, as determined by the Secretary of the Military Service concerned (or designee), which happens as a result of any of the following activities:
a. As a direct result of armed conflict;
b. While actually performing extra-hazardous service, even if the service does not directly involve combat;
c. Under conditions simulating war, including maneuvers or training;
d. By an instrumentality of war, such as weapons;
OR
3. The member has official notification from the VA approving entitlement to disability compensation for the same illness or injury that caused the entitlement to disability severance pay.

LINK to reference <----

Ron
 
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