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Bill Would Reimburse Combat-Injured Vets for Taxed Severance Pay

Veterans attend the opening ceremony inside The Silver Tree Hotel March 29 for the 23rd National Disabled American Veterans Winter Sports Clinic in Snowmass Village, Colo. (U.S. Air Force photo/Staff Sgt. Desiree N. Palacios)
Veterans attend the opening ceremony inside The Silver Tree Hotel March 29 for the 23rd National Disabled American Veterans Winter Sports Clinic in Snowmass Village, Colo. (U.S. Air Force photo/Staff Sgt. Desiree N. Palacios)

Lawmakers on Thursday filed legislation intended to prevent states from taxing severance pay of combat-injured veterans, which one senator claims has resulted in some $78 million improperly taken from veterans.

The money being taxed is the one-time lump sum disability severance pay veterans receive from the Defense Department, a payment that is not supposed to be taxed and would not be but for a glitch with the DoD's automated payment system, according to lawmakers.

"Most troubling is that we learned the government had known about this problem for decades yet continued to take this money from thousands of disabled veterans," said Tom Moore, an attorney and manager of the Lawyers Serving Warriors Project at National Veterans Legal Services Program. "The sad truth is that the government essentially stole $78 million from disabled combat veterans because of an accounting problem it's known about for years."

After looking at all the legal options, NVLSP determined that the only way to fix the problem was through legislation, Moore said. That legislation was filed by Sens. Mark Warner, D-Virginia, and John Boozman, R-Arkansas.

NVLSP estimates that more than 13,800 veterans potentially have been denied full severance pay as a result of wrongful taxation, including 720 veterans in Virginia and 165 in Arkansas.

The Combat-Injured Veterans Tax Fairness Act of 2016 requires the DoD to identify each veteran wrongly taxed, determine how much they are owed and allow them to recover the money. The legislation also extends the statute of limitations to ensure that all those who were improperly taxed may recover the money.

The improper taxing has been happening since 1991, according to Boozman, who released his statement jointly with Warner.

Louis Celli, director of the Veterans Affairs and Rehabilitation Division at The American Legion, said the Legion is backing the bill.

"The American Legion ... has worked with veterans in the past to recover these funds," he said. The group has specialists who regularly advise transitioning service members on the tax and have them sign paperwork to prevent the tax from being taken out.

He said the Legion's office in Winston-Salem, North Carolina, handles the program for the East Coast and the office in Salt Lake City, Utah, covers the West Coast. Additional information can be gotten by calling the Legion at 202-861-2700 or on its website, www.legion.org, he said.

-- Bryant Jordan can be reached at bryant.jordan@military.com. Follow him on Twitter at @bryantjordan.

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