Veterans Urged to File Form 1040X to Claim Refund for Overpayments Attributable to Disability Severance Payment

July 12, 2018

IRS has urged certain veterans who received disability payments after Jan. 17, 1991, and included that payment as income that they should file Form 1040X, Tax Return, to claim a credit or refund of the overpayment attributable to the disability severance payment.

Further, veterans who received a one-time lump-sum disability payment will receive a letter from the Department of Defense (DoD) with information explaining how to claim refunds they are entitled to. Veterans will have one year from the date of the DoD letter to claim the refunds. Veterans can either submit a claim based on the actual amount of their disability severance payment by completing Form 1040X or claim a standard refund amount based on the calendar year in which they received the severance payment.

Moreover, veterans claiming refunds for overpayments attributable to their lump-sum disability payments should write either "Veteran Disability Severance" or "St. Clair Claim" across the top of the front page of the Form 1040X they file and mail it along with the letter from the DoD to the IRS at 333 W. Pershing Street, Stop 6503, P5, Kansas City, MO 64108. Veterans who are eligible for a refund but did not receive a letter from the DoD may still file Form 1040X to claim a refund but must include both of the following to verify the disability severance payment:

• A copy of documentation showing the exact amount of and reason for the disability severance payment, such as a letter from the Defense Finance and Accounting Services (DFAS) explaining the severance payment at the time of the payment or a Form DD-214; and
• A copy of either the Department of Veteran Affairs determination letter confirming the veteran’s disability or a determination that the veteran’s injury or sickness was either incurred as a direct result of armed conflict, while in extra-hazardous service, or in simulated war exercises, or was caused by an instrumentality of war.

Finally, veterans who did not receive the DoD letter and who do not have the required documentation showing the exact amount of and reason for their disability severance payment will need to obtain the necessary proof by contacting the DFAS.