Severance Pay Tax info (non combat related)

TWL1980

TWL1980

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I was trying to gain good info regarding the 25% taxes cut from my severance pay I received recently. I was rated 10% DoD and overall 80% VA. I received my severance pay and was curious if I would be able to get a portion of those taxes back even it wasn't combat related. Will I file the claim when I do my taxes in Feb 2016? Any info on what the filing process would be or what I need to do at this point if any? I didn't want to get screwed of having to pay back more to federal when I file my taxes next year since it is a substantial amount of money to claim as additional income along with 5 months of active duty pay and also along with 6 months of my new civilian job. So any Info would be appreciated. Sorry if my post is confusing.
 
It will be counted as income. It is within the realm of possibility that you could owe more taxes if your total pay, including severance, is ~150k for that year (married). If below ~75k (married) for the year the 25% rate was too much and you'd probably receive a refund.

If you got that big of a severance check, hopefully its not all spent already.
 
Thanks Scout. As for my pay info I have given approximates if you can give me any advice. My status is married And no it's not all spent and I don't want to give it back to federal since it is my medical severance pay that was awarded to me for my disability. I feel it should be tax free since the govt. caused the injury. But that is my opinion.

After the 25% tax cut From my 14 year severance I received around $76K (approx $101,564 severance before taxes) from Air Force. My last and final LES showing all my severance pay out and entitlement it shows I grossed $129,421 and federal withheld of $28,202 then my gross pay at my new civilian job from June till Dec should be around $24,000 if this gives you any idea to give me info regarding if I will be looking to pay back more. I know y'all ain't tax accessors but any info would be greatly appreciated. Thanks again
 
@TWL1980,

Sounds to me like you should be able to get the monies withheld paid back to you. See the attachment.

Hope this helps! Best of Luck!
 

Attachments

Jason Perry said:
@TWL1980,

Sounds to me like you should be able to get the monies withheld paid back to you. See the attachment.

Hope this helps! Best of Luck!
Click to expand...

Wow, the attachment will be helpful for a lot of people!
 
Aren't the 10 blocks combat related codes? 10d is combat zone, which is excluded from that attachment, only the 10a, b, and c does it list as tax free. I believe he stated his condition was not combat related so I don't see that applying.

IRS publication 525 covers what money is considered income and what is not. What's confusing is that VA pay not being taxable has an interesting interaction with disability payments. I believe the fact that the VA is doing recoupment on your severance pay should make that severance pay non-taxable.

From IRS publication 525, under sickness and health benefits, military and government disability pensions:
If you receive a lumpsum disability severance payment and are later awarded VA disability benefits, exclude 100% of the severance benefit from your income. However, you must include in your income any lumpsum readjustment or other nondisability severance payment you received on release from active duty, even if you are later given a retroactive disability rating by the VA.

To me that means severance pay is taxable. Until the VA makes a disability determination. Things like selling leave that might be included in that lumpsum check have to be accounted for however. The problem, in my mind, is the question of if severance pay is due to years of service (taxable) or due to disability (non-taxable). Severance pay is based on years of service, that's how they calculate how much you get. Its not until the VA starts the recoupment process that they know how much and why its actually related to disability.

So I will adjust my earlier statement. Combat related codes are well understood to be excluded from taxes. My understanding has always been that non-combat related are taxed, certainly DFAS will only adjust your taxes if you have a combat related severance. I'd personally talk to a tax person, the numbers you posted suggest you may be up into the 28% tax bracket and could possibly owe more.
 
If the VA compensates for the condition (which under IDES would have to be the case), then it should (eventually) be non-taxable.
 
Yes my MEB went thru the IDES program. So I need to get with my PEBLO and find out if I received a code which like I stated my issue was Not combat related. So if I follow Jason's attachment and follow the step that pertains to me I should be able to get the taxes back? I would hate to know I had to pay more taxes due to my new civilian job and my earlier months of this year while I was active duty till my DOS. So who do I need to contact first to get the ball rolling . Advice is appreciated
 
So any advice due to I'm not familiar with all the process to check if I can get my taxes back if it qualifies for me to due to my severance was not combat related. What steps should I try first to check. I coming up on my 30 days since I received my severance pay and if there is a timeline to complete this I don't want to surpass the time. Advice is appreciated. Thanks everyone.
 
TWL1980 said:
So any advice due to I'm not familiar with all the process to check if I can get my taxes back if it qualifies for me to due to my severance was not combat related. What steps should I try first to check. I coming up on my 30 days since I received my severance pay and if there is a timeline to complete this I don't want to surpass the time. Advice is appreciated. Thanks everyone.
Click to expand...


I don't know if you've found your answer yet but look at the bottom here (http://www.dfas.mil/debtandclaims/submitclaim.html) to submit your claim to DFAS for a tax refund. Being combat related does not effect your eligibility.

"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."

This is from the St Clair Decision which you can find here (http://www.dfas.mil/retiredmilitary/plan/separation-payments/disability-severance-pay.html)

*DISCLAIMER: I have no personal experience with this yet. I will be receiving my disability sep pay in the coming weeks and will be submitting a claim for a tax refund once I get my finalized award letter from the VA.
 
Has anyone else attempted to use the online claim submission below? I submitted a claim in July and received zero response. I called and they said that they didn't receive it. So I faxed it as they advised. I have a transmittal that says my fax went through and they still have not received it. I'm getting the run around and have no clue of what my options are at this point. Thoughts?


jhenry said:
I don't know if you've found your answer yet but look at the bottom here (http://www.dfas.mil/debtandclaims/submitclaim.html) to submit your claim to DFAS for a tax refund. Being combat related does not effect your eligibility.

"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."

This is from the St Clair Decision which you can find here (http://www.dfas.mil/retiredmilitary/plan/separation-payments/disability-severance-pay.html)

*DISCLAIMER: I have no personal experience with this yet. I will be receiving my disability sep pay in the coming weeks and will be submitting a claim for a tax refund once I get my finalized award letter from the VA.
Click to expand...
 
When were you discharged with severance? Are you making the claim with DFAS in the same calendar year?
 
I have the same question when I suppose to claim the refund for my severance, I going to receive the severance on May but already file my taxes last Jan 16. So my question is this i claim it the refund for taxes next year?
 
Has there been any new developments with this? I am getting the run around after submitting my fax as well
 
Any activity on this? looking for any success or fail stories on getting taxes back.. my husband works and i am very concerned that we are going to hit the 28% threshold...
 
TWL1980 said:
Thanks Scout. As for my pay info I have given approximates if you can give me any advice. My status is married And no it's not all spent and I don't want to give it back to federal since it is my medical severance pay that was awarded to me for my disability. I feel it should be tax free since the govt. caused the injury. But that is my opinion.

After the 25% tax cut From my 14 year severance I received around $76K (approx $101,564 severance before taxes) from Air Force. My last and final LES showing all my severance pay out and entitlement it shows I grossed $129,421 and federal withheld of $28,202 then my gross pay at my new civilian job from June till Dec should be around $24,000 if this gives you any idea to give me info regarding if I will be looking to pay back more. I know y'all ain't tax accessors but any info would be greatly appreciated. Thanks again
Click to expand...

Did you receive your severance in one lump sum or spread out in payments?
 
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