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Congressman David Rouzer recently introduced H.R. 5015, the Combat-Injured Veterans Tax Fairness Act of 2016, to ensure veterans who suffered service-ending combat-related injuries are not being wrongfully taxed on their severance packages from the Department of Defense (DoD).

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 the DoD. However, due to an accounting error, more than $78 million is owed to an estimated 14,000 veterans. H.R. 5015 corrects this problem by instructing the DoD to identify those who were wrongfully taxed so that they can be reimbursed.

“Our soldiers, sailors, airmen and Marines risk their lives every day to protect our freedoms. My bill is a common-sense solution to ensure that every veteran who has had their severance payments improperly taxed receive every penny that they are rightfully owed. These veterans deserve no less for their service and sacrifice to our nation,” said Congressman Rouzer.

The bill has been assigned to the House Armed Services Committee and the House Ways and Means Committee. Co-sponsors of H.R. 5015 include: U.S. Representatives Marsha Blackburn (R-TN), Tom Cole (R-OK), Bob Gibbs (R-OH), Vicky Hartzler (R-MO), Duncan Hunter (R-CA), Walter B. Jones, Jr. (R-NC), Martha McSally (R-AZ), Robert Pittenger (R-NC), David P. Roe (R-TN), and Chris Stewart (R-UT).

This problem was originally identified by the National Veterans Legal Services Program (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 potentially have been denied full severance pay as a result of wrongful taxation, including 565 veterans in North Carolina.

“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, we concluded that the only viable path to recovery of these misappropriated payments was through legislation. We hope other Representatives will support the bill so these combat-disabled veterans can receive the disability severance pay that they earned and their country owes them,” said Tom Moore, attorney and manager of the Lawyers Serving Warriors project at NVLSP.

BACKGROUND ON THE NEED FOR THE LEGISLATION:
One-time lump sum disability severance payments to active duty service members have been excluded from taxable income since a 1991 court ruling. This exclusion has been codified into the Department of Defense’s Financial Management Regulation, and also clarified in regulations used by the service branches. Due to limitations in its accounting system, the Defense Finance and Accounting Service (DFAS) knowingly took $78 million in “tax payments” from combat disabled service members. To recoup wrongfully withheld funds, veterans could have filed an amended tax return with the Internal Revenue Service, but most of the thousands of veterans affected are outside of the three-year period in which they can file an amended tax return. Only legislation passed by Congress and signed into law by the President can correct this injustice.