Category:
Military Pay & Allowance Debts

Subcategory:
Disability Severance Pay Taxes

Created:
2014-08-13

Modified:
2025-09-10

Disability Severance Pay Taxes

Question

I have received a rating from the VA and believe I am owed a refund of my taxes withheld from my Disability Pay Entitlement.  What should I do?

Answer

In order to obtain a refund, please contact your former command and ask them to submit the following documentation on your behalf.  Documentation must be submitted by them through the Case Management System or Defense Workload Operations Management System.


Separation Orders
DD214 and DD-215, if applicable
VA Summary of Benefits letter (We made a decision on your VA benefits)
Physical Evaluation Board (PEB) Proceedings 

Please note that our office cannot refund taxes in a year subsequent to when they were withheld. If our office does not receive AND process your refund before the year in which the Disability Severance Pay entitlement was received, we will be unable to complete your request. If this occurs you will need to receive the refund from the IRS. To receive the tax refund from the IRS, you must file an IRS Form 1040X (Amended Tax Return) along with a copy of your VA award letter, VA summary of benefits letter, DD Form 214/215, separation orders, and a written request for a tax refund based upon the St. Clair v. United States decision, with the IRS.  Write St. Clair v. United States across the top of the 1040X. Put the total amount of wages that you reported on your tax return (1040) on the 1040X.  Next, subtract the DSP from that amount to get your new taxable wages.  Since your taxable wages are reduced, your tax liability is reduced, entitling you to a tax refund.

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