If your taxpayer is a veteran of the armed forces and received severance pay after January 17, 1991, they may qualify for a refund. This pay should have not been included as income and the IRS and Department of Defense is issuing refunds for taxpayers for as far back as 1991. Typically, a taxpayer can only claim a refund within 3 years, but the IRS has made a special exception for these veterans.
The Department of Defense issued letters to each veteran who received the severance pay with instructions on how to claim the refund. In order to claim the refund, the taxpayer will need to file a Form 1040X with “Veteran Disability Severance” written across the top. All of these prior year forms may be found at the IRS Website.
These veterans also have the option of completing a more simplified version and claim a standard refund amount based on the tax year. To do this, write “Disability Severance Payment” on line 15 of the Form 1040X and enter the following amounts on both lines 15 and 22:
- For tax years 1991-2005 – $1,750
- For tax years 2006-2010 – $2,400
- For tax years 2011-2016 – $3,200