Hi all, just got my severance pay today but it looks like it was taxed. I checked Mypay to see the LES for it to see if it was taxed, but theres no LES for it. Where can I find an LES for it, and *should* it have been taxed or should it have been tax free?
Severance pay LES? Tax Free or not?
- Thread starter emstevens93
- Start date
@emstevens93,
Your severance pay should not have been taxed, but this is a known issue. It has to do with the way the different service branches write separation orders - the reasons aren't really important, though. What's important is that the IRS just took 25% of your hard-earned severance, and that there's an easy way to get that severance tax back.
The info you need is on DFAS's website, here: https://www.dfas.mil/debtandclaims/submitclaim.html. At the bottom of the page, under "Disability Severance Pay," there's a link to do it online. Pretty simple process. Just involves you sending DFAS some paperwork from the VA.
Hope that helps!
Your severance pay should not have been taxed, but this is a known issue. It has to do with the way the different service branches write separation orders - the reasons aren't really important, though. What's important is that the IRS just took 25% of your hard-earned severance, and that there's an easy way to get that severance tax back.
The info you need is on DFAS's website, here: https://www.dfas.mil/debtandclaims/submitclaim.html. At the bottom of the page, under "Disability Severance Pay," there's a link to do it online. Pretty simple process. Just involves you sending DFAS some paperwork from the VA.
Hope that helps!
Thank you so much! I'll check that out. Do you know where to find an LES or some sort of statement breaking it down? Mypay does not have one for me.
MyPay is where I would have gone for it. You could try calling DFAS directly at 888-332-7411.
Not all payments of Disability Severance Pay are exempt from being taxed. The "St Clair Decision of 1991" provided:
In most disability retirements, the member is in concurrent receipt of Department of Veterans Administration Compensation. In these cases, a dollar-for-dollar reduction occurs against retired pay. The same principle applies to the receipt of severance pay. If the member is later discharged from the TDRL with severance pay, the same offset occurs with the Department of Veterans Affairs (VA) withholding compensation pay from the member until such time as the severance pay is recouped. In 1991, the United States District Court ruled that disability severance pay received for personal injury resulting from active service in the armed forces is excludable from taxable income for members who are awarded VA compensation for the same disability.
Note: The exclusion was later expanded to include the conditions shown at DoD Financial Management Regulation Volume 7A, Chapter 35, 350404.
Reference: DoD Financial Management Regulation Volume 7A, Chapter 35
DISABILITY SEVERANCE PAY
350404 Taxability and Withholding
A. General. Disability severance pay is normally taxable income. It is not subject to tax withholding or reporting, however, 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.
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.
Ron
In most disability retirements, the member is in concurrent receipt of Department of Veterans Administration Compensation. In these cases, a dollar-for-dollar reduction occurs against retired pay. The same principle applies to the receipt of severance pay. If the member is later discharged from the TDRL with severance pay, the same offset occurs with the Department of Veterans Affairs (VA) withholding compensation pay from the member until such time as the severance pay is recouped. In 1991, the United States District Court ruled that disability severance pay received for personal injury resulting from active service in the armed forces is excludable from taxable income for members who are awarded VA compensation for the same disability.
Note: The exclusion was later expanded to include the conditions shown at DoD Financial Management Regulation Volume 7A, Chapter 35, 350404.
Reference: DoD Financial Management Regulation Volume 7A, Chapter 35
DISABILITY SEVERANCE PAY
350404 Taxability and Withholding
A. General. Disability severance pay is normally taxable income. It is not subject to tax withholding or reporting, however, 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.
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.
Ron