The Internal Revenue Service (IRS) is advising certain veterans who received disability severance payments after January 17, 1991, and included that payment as income, that they should file Form 1040X, Amended U.S. Individual Income Tax Return, to claim a credit or refund of the overpayment attributable to the disability severance payment. This is a result of the Combat-Injured Veterans Tax Fairness Act passed in 2016.
Most veterans who received a one-time, lump-sum disability severance payment when they separated from their military service will receive a letter from the Department of Defense with information explaining how to claim tax refunds they are entitled to. The letters include an explanation of a simplified method for making the claim. The IRS has worked closely with the DoD to produce these letters, explaining how veterans should claim the related tax refunds.
See also the Armed Forces’ Tax Guide.