Some Tennessee veterans might be entitled to a tax refund without even realizing it.
Last July, the IRS sent out letters (numbers 6060-A and 6060-D) to roughly 130,000 veterans across the country notifying them about a refund available to those who had taxes improperly withheld from their disability severance pay between 1991 and 2016. To take advantage of the refund, an eligible veteran has to file an amended tax return before the end of July 2019 for the year in which they received disability severance.
As that deadline swiftly approaches, the Tennessee Taxpayer Project (an initiative of Legal Aid Society of Middle Tennessee and the Cumberlands) is stepping up its efforts to get the word out to veterans who might qualify. We don’t know how many veterans in Tennessee are eligible for the program. But considering how life circumstances can change over decades (1991 feels like an eternity ago) it’s very possible that many of the 130,000 eligible veterans have moved repeatedly or changed names, making it harder for the IRS notification to reach them.
There’s also the possibility that some veterans are intentionally avoiding messages from the IRS, e.g., maybe they owe taxes for other income. Or perhaps they’ve fallen behind on opening mail and the letter is sitting in a pile of things to deal with. Maybe the offer of free money sounds too good to be true.
We want veterans to know that this program is real, and if they’re eligible, they have a right to this money. But they do need to act quickly before the window of eligibility closes.
To be eligible, a veteran has to meet the following five criteria:
1) Be found unfit for duty;
2) Have fewer than 20 years of service;
3) Have a disability rating of less than 30% (more about disability ratings below);
4) Have left the military after Jan. 17, 1991; and
5) Have gotten severance pay for injuries that the military says were combat-related at the time the person left the military.
When a service member suffers a medical disability that makes them unfit for duty, the VA assigns him or her a disability rating based on the severity of his or her disability. Those with ratings over 30% are eligible for early retirement with ongoing benefits. Service members with a disability rating of less than 30% are traditionally offered a disability severance package as a one-time payment, which is not supposed to be taxed. The government’s error in taxing this benefit was corrected with a recent piece of legislation, the Combat-Injured Veterans Tax Fairness Act of 2016.
The amount of money available through the program largely depends on each veteran’s circumstances, including his years of service and how he originally filled out his federal tax withholding form. If he had several dependents, for instance, he might not have had much money withheld, but a person who was single with zero dependents might be eligible for more. Most people are eligible for between $1,750 and $3,200. These amounts of money can make a big difference in a person’s life, particularly if they’re living paycheck to paycheck.
To apply for the benefit, you have to fill out an amended tax return (1040X) and write the words ‘veteran disability severance’ across the top. People at the IRS are trained to catch that wording if it’s clearly written on a form.
The form itself can be tricky to fill out correctly, and unfortunately, there’s no appeal process in place when a form has errors on it. However, if you know your original form is wrong for some reason, you can correct the error by re-filing.
In addition, government response time has been slow. One person we’ve worked with who filed in November still hasn’t heard back on the status of her filing, for instance. The recent 34-day government shutdown also complicated the process, since it represented more than one-twelfth of the time that the benefit is available.
My most important piece of advice to veterans is not to procrastinate on exercising your rights. If you’ve received a 6060-A or 6060-D letter from the IRS, read it and determine if you qualify. Follow the instructions very carefully, and call the IRS’ special team number (833-558-5245, ext. 378) to get answers if you’re unsure about something. They are open between 7 am and 7 pm Monday through Friday.
The Tennessee Taxpayer Project at Legal Aid Society also offers free legal aid to clients who fall within a certain income threshold (250% of the poverty level). If you believe you qualify, call 866-481-3669 for help in applying for this benefit.
(Meganne O’Neil is a graduate of Cornell University and the University of Tennessee College of Law. She joined the Legal Aid Society in 2019. She is licensed to practice law in New Hampshire and the United States Tax Court.)