Please keep us posted as to your final results.
And let's hope this IS the final leg on this DFAS/IRS nut-roll!
nwlivewire
The IRS disallowed my severance pay recoupment
- Thread starter Ccarro63
- Start date
Please keep us posted as to your final results.
And let's hope this IS the final leg on this DFAS/IRS nut-roll!
nwlivewire
Hey Ccarro,
I am so completely confused. This is a Medically disability severance pay. (Not retired) I got 10% rating from Army, 40% from VA, (it was not for the same injuries) received both in the same month and same year. I already received va award letter, peb findings, DD214, the whole nine yards. Severance pay from Army was taxed and when I got the W2 severance was included along with my wages in box 1. No indication on W2 that states it should be non taxable. I Was not aware of deadline of 12/31 until I called DFAS. So after researching matter, I decided to go to H&R block to have them file taxes and see if they can get my tax back from severance pay. (With original w2) They are stating that they may not be able to since 1) not the same ratings/injuries for both army and va and I might have to pay back the VA. What?? I wish I could just get ahold of someone that knows what they are talking about and help with this matter. DFAS said I have to mail in all the paperwork to get a corrected w2 to file in 2015!! It doesn't make any sense as I won't have a W2 in 2014 or 2015 since I am no longer in the Army. Man I am so confused!
I am so completely confused. This is a Medically disability severance pay. (Not retired) I got 10% rating from Army, 40% from VA, (it was not for the same injuries) received both in the same month and same year. I already received va award letter, peb findings, DD214, the whole nine yards. Severance pay from Army was taxed and when I got the W2 severance was included along with my wages in box 1. No indication on W2 that states it should be non taxable. I Was not aware of deadline of 12/31 until I called DFAS. So after researching matter, I decided to go to H&R block to have them file taxes and see if they can get my tax back from severance pay. (With original w2) They are stating that they may not be able to since 1) not the same ratings/injuries for both army and va and I might have to pay back the VA. What?? I wish I could just get ahold of someone that knows what they are talking about and help with this matter. DFAS said I have to mail in all the paperwork to get a corrected w2 to file in 2015!! It doesn't make any sense as I won't have a W2 in 2014 or 2015 since I am no longer in the Army. Man I am so confused!
I read the entire forum and I'm a bit confused. Who am I sending the tax protest documents to. And do you have and updated fax number for dfas that one does not work. That's why I think I'm wrong. Thank you
Jamesc,
Disability Severance Pay is not taxable as long as the injury you got rated 10% for is also on your VA award letter. The VA Award letter will always have a higher % than just your unfitting condition, unless you had no other injuries while you were in the service. Don't let the H&R block person confuse you. Bottom line is if you're unfitting condition is being compensated for by the VA, your disability severance pay is non-taxable according to "St. Claire v. United States." I heard (not confirmed) that DFAS only issues corrected W2s in Jan of each year, which may be why DFAS told you to file in 2015 (because that would be the next time they issue corrected W2s). The corrected W2 will be for the tax year you received and was taxed on disability severance pay, not the year the corrected W2 is issued. After you receive your corrected W2, you would then send it, along with all the other required paperwork), to the IRS using form 1040x amending your tax returns for that same year and asking for the refund (the tax they took from your disability severance pay). Hope this helps.
Disability Severance Pay is not taxable as long as the injury you got rated 10% for is also on your VA award letter. The VA Award letter will always have a higher % than just your unfitting condition, unless you had no other injuries while you were in the service. Don't let the H&R block person confuse you. Bottom line is if you're unfitting condition is being compensated for by the VA, your disability severance pay is non-taxable according to "St. Claire v. United States." I heard (not confirmed) that DFAS only issues corrected W2s in Jan of each year, which may be why DFAS told you to file in 2015 (because that would be the next time they issue corrected W2s). The corrected W2 will be for the tax year you received and was taxed on disability severance pay, not the year the corrected W2 is issued. After you receive your corrected W2, you would then send it, along with all the other required paperwork), to the IRS using form 1040x amending your tax returns for that same year and asking for the refund (the tax they took from your disability severance pay). Hope this helps.
Ccarro63
PEB Forum Regular Member
Jamesc,
Sorry I didn't see your post and reply sooner! Normally I get an email to notify me of responses, but I didn't get one until today when JJ1986 replied.
Before I get into all the specifics I'll try to clear up some of your concerns the best I can based on my experience.
First, it doesn't matter that the VA rated you higher than the army had. The army rated you on specifics that made you no longer retainable, while the VA rated you on all medical issues that were claimed---perfectly normal.
Second, when it comes to getting paid by the government there is no double dipping. So, when you start getting your disability payments from the VA, the VA will deduct a portion of those payments (a small percent) to reclaim the severance pay. The reason being is that the severance pay was originally a payment for all of your medical issues. After the VA physicals they increased the rating and along with that how much you'll be paid and HOW you will get paid. So, they recoup the lump sum they had previously paid you and then pay a monthly amount going forward depending on the rating.
Now...let's get back to that severance pay because that lump sum was taxed BIG TIME. Since it was taxed and now it has to be paid back we need to get those tax dollars back. So, the first and most important thing needed is a corrected W-2 from DFAS for the tax year in which the severance was paid. They will provide this, but I found getting in contact with the right person willing to help extremely difficult. Maybe I just had bad luck...all I can say is make sure you provide any and all supporting documentation that shows that the rating you received when you were discharged is (or is one of) the ratings the VA has now rated you for along with a letter explaining the situation (social security number being on the documents might be a security issue but the DFAS supervisor requested it when I emailed her my stuff). I will say that this step of the process was probably the most difficult step for me. They have so many people that seem to not be willing to or are unable to help make anything happen. As long as you keep pushing to get someone (even if they are at a different number) within DFAS that can help.
Third, when you finally do get the corrected W-2, you won't have to wait until 2015 to file it. You use the corrected W-2 to file an amended tax return for the year you received the severance using IRS form 1040x. This form is pretty easy to fill out using the corrected W-2 and the tax return for that tax year. Just pull up the form on the IRS website ( the form instructions are also on the IRS website if needed). When filing the 1040x with the IRS, it's important to send the completed and signed 1040x, a copy of the tax return for the year the severance was paid signed, Original IRS form W-2, corrected IRS form W-2, Separation orders, DD Form 214, VA award documentation, and a letter like one I will put in my next post. The letter I am posting is just like the one that is found through these boards and has been very helpful for so many...just make edits where it calls for name, date, service, contact info, and I think the percentage your severance was taxed (probably between 25-28%).
Lastly, a quick update on where I'm at in my entire process. I spoke with the IRS yesterday since it has been just over 12 weeks since they had received my amended return. It was just assigned to an IRS representative yesterday. The agent I spoke with was fantastic and extremely helpful (I DID NOT expect this). He looked at every piece of info I had sent and actually found one error that worked in my favor that could bring my return up (only by $10...but rare to see this kind of commitment from someone). He saw no reason to be concerned and only said that they are behind more than normal due to budget cuts and manning shortages but that now that it's assigned to someone it should be completed within the next couple weeks and I should be seeing a check in the mail.
Ccarro63
PEB Forum Regular Member
((((HERE IS THE SAMPLE LETTER REFEREED TO FROM ABOVE))))
Month Day, Year
TO: INTERNAL REVENUE SERVICE CENTER
KANSAS CITY, MO 64999 (Make sure to send to the correct IRS Service Center for your area)
FROM: NAME – SOCIAL
ADDRESS
CITY, ST ZIP
SUBJECT: MILITARY SEVERANCE PAY REFUND OF TAXES
Dear Sir/Ma’am:
I was medically discharged from the SERVICE, on Month Day Year, under honorable conditions. I was awarded severance pay in the amount of $XXXXX, which was taxed at XX%. I have now received a disability rating from the Veterans Affairs (VA) for the same disability for which the SERVICE compensated me.
Under the provisions of 26 U.S.C. § 104(a)(4), and 26 U.S.C. § 104(b)(2) (D), as interpreted by the District Court in St. Clair vs. United States, disability severance payments are amounts received for personal injury(ies) and are thus excludable from taxable income. Therefore, I request a refund of taxes withheld in year YEAR, the year in which I received my severance pay.
I am submitting the following documentation to demonstrate that I am eligible for a refund of all taxes withheld.
•Amended Individual Income Tax Return form 1040X for the year YEAR
•Individual Federal Income Tax Return for the year YEAR (year that severance pay was received)
•Original IRS Form W-2
•Corrected IRS Form W-2
•Separation orders
•DD Form 214
•VA award documentation
Please contact me if you require any further information. My current phone number is CONTACT NUMBER. I currently reside at the address listed above.
Sincerely,
FULL NAME
Month Day, Year
TO: INTERNAL REVENUE SERVICE CENTER
KANSAS CITY, MO 64999 (Make sure to send to the correct IRS Service Center for your area)
FROM: NAME – SOCIAL
ADDRESS
CITY, ST ZIP
SUBJECT: MILITARY SEVERANCE PAY REFUND OF TAXES
Dear Sir/Ma’am:
I was medically discharged from the SERVICE, on Month Day Year, under honorable conditions. I was awarded severance pay in the amount of $XXXXX, which was taxed at XX%. I have now received a disability rating from the Veterans Affairs (VA) for the same disability for which the SERVICE compensated me.
Under the provisions of 26 U.S.C. § 104(a)(4), and 26 U.S.C. § 104(b)(2) (D), as interpreted by the District Court in St. Clair vs. United States, disability severance payments are amounts received for personal injury(ies) and are thus excludable from taxable income. Therefore, I request a refund of taxes withheld in year YEAR, the year in which I received my severance pay.
I am submitting the following documentation to demonstrate that I am eligible for a refund of all taxes withheld.
•Amended Individual Income Tax Return form 1040X for the year YEAR
•Individual Federal Income Tax Return for the year YEAR (year that severance pay was received)
•Original IRS Form W-2
•Corrected IRS Form W-2
•Separation orders
•DD Form 214
•VA award documentation
Please contact me if you require any further information. My current phone number is CONTACT NUMBER. I currently reside at the address listed above.
Sincerely,
FULL NAME
Ccarro63
PEB Forum Regular Member
I can confirm that DFAS issues corrected W-2's throughout the year. I received mine in June. I wonder if they process them biannually? It would be nice to get more info on this too.
I sent all of the documentation with my tax return this year. My severance pay was received in May. I was discharged in April and I received my award letter in July. I would have made the cutoff but someone at payroll wasn't familiar with the process and just kept feeding me lies and sat on it. I was told to send the award letter, sep orders, W-2 and 214&215 in to the IRS. It's a bit annoying when they told me I wouldn't receive an amended W-2 because the cutoff is December 1 of the year you receive your award letter and severance pay. I talked to the IRS and they told me I needed a corrected W-2 from DFAS before they could help me. I wish they would talk to each other better. I got tired of running in circles and just sent everything in. My return is still processing so I'm not sure if that was the right thing to do. Either way it shouldn't be this difficult.
DIO, something similar happened to me. I sent in all my documentation to DFAS around 18 July 2013. I waited the requested 60 days and contacted them. Shock of all shocks, they never received my certified/return receipt packet. I sent all info (AGAIN) around 25 September 2013. They failed to get all my paperwork processed before 31 December and as a result, I am working with my accountant to get my taxed money back. Now, I get to figure out why the state is getting a chunk of my severance pay when it "technically" doesn't exist. Hmmmmm.
That being said, you should be able to get a corrected W2 from DFAS. I suggest contacting their ICE people.
Good luck!
That being said, you should be able to get a corrected W2 from DFAS. I suggest contacting their ICE people.
Good luck!
Ccarro63
PEB Forum Regular Member
I'm not sure why the DD form 214 would be referred to for the pre-tax amount of the severance since it won't show that information. I believe it will only indicate whether there was severance pay for disability and if it was combat or non combat. The information they are needing would be from the original W-2 (for the originally taxed amounts) in conjunction with a corrected W-2 (for the amount they owe you back). By providing the with the DD form 214, original W-2, corrected W-2, a letter explaining the reason for the amendment, and the disability award documentation from the VA they will have all the information needed to process a refund.
Ccarro63
PEB Forum Regular Member
Here's an update to my grand old situation....
Let me recap a little. My amended return was accepted by the IRS on December 18th, 2013 for the 2011 tax year. After the initial 12 weeks of waiting I called and was told it could be another 4 weeks. After 16 weeks I called and was told that it was processed but was in another department where things get reviewed or something to the extent. He wrote a note to my account requesting the funds be distributed or for a letter be sent to me to explain the delay. He also explained to me that after attaching that note to the account they have 4 weeks to take action on that note. So...Today here I am 4 weeks later. Approximately 5 months after the IRS accepted my amended return and I give them a call because I have not heard back yet. The IRS representative looks into my file and informs me that a letter has been sent to tell me that the amended return will not be processed and that a letter has been sent to explain why. She did not know the reason, but could only say that the letter would provide the information.
Now....If you've read my previous posts from this thread you may already be aware that I've been pretty darn thorough with making sure I did things correctly. I've spoken with representatives from the Paralyzed Veterans Association, reviewed every post from these boards I could find, spoken to any vet I could that has gone through a similar situation and it seems I've done everything perfect. My math on the return is spot on...double, triple and quadruple checked by multiple sets of eyes just to be sure. I sent them my original tax return, the amended tax return, my W-2, corrected W-2, my separation orders, my DD form 214, and my VA award documentation......and 5 months later I have to sit and wait who knows how long for a letter to tell me why they won't pay me the $15.6K they took in taxes from my disability payments.
The waiting game continues. Has anyone else had ANY luck getting their money back from these crooks recently?
Let me recap a little. My amended return was accepted by the IRS on December 18th, 2013 for the 2011 tax year. After the initial 12 weeks of waiting I called and was told it could be another 4 weeks. After 16 weeks I called and was told that it was processed but was in another department where things get reviewed or something to the extent. He wrote a note to my account requesting the funds be distributed or for a letter be sent to me to explain the delay. He also explained to me that after attaching that note to the account they have 4 weeks to take action on that note. So...Today here I am 4 weeks later. Approximately 5 months after the IRS accepted my amended return and I give them a call because I have not heard back yet. The IRS representative looks into my file and informs me that a letter has been sent to tell me that the amended return will not be processed and that a letter has been sent to explain why. She did not know the reason, but could only say that the letter would provide the information.
Now....If you've read my previous posts from this thread you may already be aware that I've been pretty darn thorough with making sure I did things correctly. I've spoken with representatives from the Paralyzed Veterans Association, reviewed every post from these boards I could find, spoken to any vet I could that has gone through a similar situation and it seems I've done everything perfect. My math on the return is spot on...double, triple and quadruple checked by multiple sets of eyes just to be sure. I sent them my original tax return, the amended tax return, my W-2, corrected W-2, my separation orders, my DD form 214, and my VA award documentation......and 5 months later I have to sit and wait who knows how long for a letter to tell me why they won't pay me the $15.6K they took in taxes from my disability payments.
The waiting game continues. Has anyone else had ANY luck getting their money back from these crooks recently?
Ccarro63
PEB Forum Regular Member
Here's another update.
I got a letter saying my account had been adjusted as requested and that I'd be getting my refund in 4 to 6 weeks. I was SO happy! This 2 nightmare would be over and I'd have MUCH needed money to stay afloat. Then not only 3 days later I get another letter dated the same day saying they were unable to process my claim. My heart fell out of my chest.
I called the IRS for the billionth time and I was told that it appears "I am commingling provisions of the St Clair ruling with those of the Strickland decision". Now, I'm not familiar enough with the Strickland decision, but doesn't it pertain to retiree's? I was medically discharged with a severance and then after my VA claim finished was rated at 100%...making the severance non-taxable as it becomes a disability payment and I've been paying the entire thing back every month.
They want me to clarify my claim but I don't know what to do. Anyone have any advice on this....I'm lost.
I got a letter saying my account had been adjusted as requested and that I'd be getting my refund in 4 to 6 weeks. I was SO happy! This 2 nightmare would be over and I'd have MUCH needed money to stay afloat. Then not only 3 days later I get another letter dated the same day saying they were unable to process my claim. My heart fell out of my chest.
I called the IRS for the billionth time and I was told that it appears "I am commingling provisions of the St Clair ruling with those of the Strickland decision". Now, I'm not familiar enough with the Strickland decision, but doesn't it pertain to retiree's? I was medically discharged with a severance and then after my VA claim finished was rated at 100%...making the severance non-taxable as it becomes a disability payment and I've been paying the entire thing back every month.
They want me to clarify my claim but I don't know what to do. Anyone have any advice on this....I'm lost.
Ccarro63
PEB Forum Regular Member
The IRS are crooked. They closed out my amendment with zero adjustment and won't let me appeal. They said I have to file a new amendment just to clarify what they simply didn't understand. I sent them a full detailed letter explaining the St Clair ruling with reference to the IRS standpoint/action on decision. I even went above and beyond and sent them copies of the DOD guidelines. It seems to me that they took their time (5 months) and then when one of their reps put an order on my account that forced them to take action within 4 weeks they closed out the amendment by making up some garbage about being confused about whether I wanted to use the provisions of the St. Clair ruling or the Strickland Decision. The Strickland decision doesn't even apply to me, I was medically discharged after being injured while on active duty...my VA rating came after I was discharged in the subsequent year. It's all spelled out for them...I STRONGLY believe they are trying to drag this out past the statute of limitations. I called and got assigned a tax advocate who is supposed to call me within 5-7 days. I'll have to start all over for the 3rd time from scratch....already been over 2 years trying to get my money back from them. You'd think our disabled veterans would be taken care of better than this.
Ccarro63
PEB Forum Regular Member
I haven't updated my progress in awhile because the progress has been slow...until now. Following my last post I contacted the IRS tax advocate. I felt it wasn't correct for the IRS to close out my claim without giving me the option to appeal and I was correct. The tax advocate worked for a month or so to get the claim reopened and sent to appeals. I was extremely grateful for the advocates assistance. After me claim went to the appeals officer I was able to speak with the appeals officer by phone and she explained that all cases are worked 1st come 1st serve and that it'd be a few weeks before she got to mine. I waited a month and called her back. This is when she gave me the good news...they allowed the full amount of my claim ($15,566). After 3 years I'm finally getting the taxes they assessed on my disability! A couple days after I spoke with her I received a letter from the IRS confirming the refund...it also explained that they would be paying me an additional $1,800 for that tax years child tax credit (which i qualify for now because my income for that year changed...something I did not take into consideration when I filed the amendment). So, they are refunding a total of $17,366.
The only thing I'm still unsure of is if they are going to pay interest. Based on my research, interest is due because they delayed the refund. That being the case they would have to pay interest back to when the claim was filed. The only thing is the letter I received doesn't mention anything about interest. If interest is added in it would add about another $400.
Now....I'm only wondering how it will take for the IRS to put the check in the mail.
I sincerely hope all the info I've posted here helps someone.....never give up. I know he and my family have never needed this money more than we do now with winter coming soon and I know I'm not the only Veteran in that situation.
The only thing I'm still unsure of is if they are going to pay interest. Based on my research, interest is due because they delayed the refund. That being the case they would have to pay interest back to when the claim was filed. The only thing is the letter I received doesn't mention anything about interest. If interest is added in it would add about another $400.
Now....I'm only wondering how it will take for the IRS to put the check in the mail.
I sincerely hope all the info I've posted here helps someone.....never give up. I know he and my family have never needed this money more than we do now with winter coming soon and I know I'm not the only Veteran in that situation.
I am absolutely delighted to read such good news!
Your being persistent really and finally paid off - with interest, too!
Best wishes!
nwlivewire
Indeed, congratulations; persistence definitely "pays" at the end of the day for sure!
Take care and enjoy life! 
Thus, I quite often comment that "possessing well-informed knowledge is truly a powerful equalizer."
Best Wishes!