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President Signs Into Law NVLSP Supported Bill to End Taxation of Veterans’ Severance Payments

Released 12/19/16 | Tags: Congressional Legislation

NVLSP estimates 13,800 veterans were denied $78 million in severance pay when wrongfully taxed

FOR IMMEDIATE RELEASE – December 19, 2016 (updated)

WASHINGTON— On December 16, 2016, President Obama signed into law legislation supported by the National Veterans Legal Services Program (NVLSP), to ensure that veterans who suffer service-ending combat-related injuries are not taxed on the severance payment they receive from the Department of Defense (DOD). 

The Combat-Injured Veterans Tax Fairness Act of 2016 directs DOD to identify veterans who have been separated from service for combat-related injuries and received a severance payment that was improperly taxed by the federal government. It instructs DOD to determine how much the combat-wounded veterans are owed and allow veterans who have been improperly taxed to recover the withheld amounts.

The problem of improper taxation of the severance payments to combat-injured veterans was originally identified by NVLSP, an independent, nonprofit veterans service organization that has served active duty military personnel and veterans since 1980. NVLSP estimates that over 13,800 veterans may have been denied full severance pay as a result of wrongful taxation.

“Our government wrongfully withheld $78 million from thousands of disabled combat veterans over a period of several decades,” said Tom Moore, attorney and manager of the Lawyers Serving Warriors® project at NVLSP. Moore discovered the problem.

“We are thrilled to see this important legislation signed into law. Thousands of our nation’s disabled veterans are one step closer to receiving a remedy to fix this egregious oversight,” said Moore.

Under federal law, veterans who suffer combat-related injuries and who are separated from the military are not supposed to be taxed on the one-time lump sum disability severance payment they receive from DOD. Unfortunately, taxes on combat-related disability severance payments were withheld from qualifying veterans for a number of years. Veterans are typically unaware that their benefits were improperly reduced as a result of DOD’s actions.

NVLSP noted that the government knew about this problem for decades yet continued to take this money from thousands of disabled combat veterans. After exploring all legal options, NVLSP concluded that the only viable path to recovery of these misappropriated payments was through legislation.

U.S. Senators John Boozman (R-AR) and Mark Warner (D-VA) introduced identical legislation in the Senate in March 2016. It was passed unanimously on December 10, 2016.

“I’m pleased that the Senate passed this critical legislation to right a wrong for our veterans who were unfairly penalized for injuries they sustained while in service to our country. This will ensure that our nation’s wounded receive the benefits they earned,” Boozman, a member of the Senate Veterans Affairs Committee, said.

“Severance pay for service members who suffered combat-related injuries should not be taxed under any circumstance,” said Sen. Warner, member of the Senate Finance Committee. “I want to thank NVLSP for first drawing attention to this issue, and hope that the thousands of veterans who were improperly taxed will soon be able to recover the remaining compensation they are owed for their courageous sacrifice.”

The House of Representatives passed identical legislation, sponsored by Rep. David Rouzer (R-NC) on December 5, 2016. “Our soldiers, sailors, airmen and Marines risk their lives every day to protect our freedoms, our values and our republic. The revelation that there are thousands of veterans who did not receive their full disability severance pay is unacceptable. This legislation is a common-sense solution to ensure that these veterans who had their severance payment wrongfully taxed will receive every penny that they are rightfully owed. These veterans deserve no less for their service and sacrifice to our nation,” said Rep. David Rouzer, the House sponsor of the bill.

The Senate language was included as an amendment to the Taxpayer Protection Act of 2016, which passed the Senate Finance Committee in April.

For Senator Boozman's Office: Sara Lasure, 202-224-4843, Sara_Lasure@boozman.senate.gov
For Senator Warner’s Office: Rachel Cohen, 202-228-6884, Rachel_Cohen@warner.senate.gov 
For Congressman Rouzer’s Office: Danielle Adams, 202-225-2731, Danielle.Adams@mail.house.gov
For NVLSP: Ami Neiberger-Miller, 703-887-4877, ami@steppingstoneLLC.com


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