Injured Vets Overpaid Taxes by Average $10K Due to Computer Error

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Please read this entire article and then forward this link to every vet you know. Help get the word out! There may very well be money waiting for them.

Here’s what happened. Due to a computer glitch from 1991 until 2016, non-taxable disability payments were treated as taxable. It appears that this is only applicable for vets who received lump sum payments and not the regular monthly amounts. Still, it’s estimated that this is applicable for over 130,000 veterans.

One of the challenges in getting the money back to the vets is that the IRS does not allow amendments more than 3 years back. The National Veterans Legal Services Program was prepared to file suit on behalf of the vets, when the government conceded and WILL allow the vets to file for past tax refunds.

Impacted veterans should receive a letter from the Defense Department explaining the program and the process. If you’re an injured vet and don’t receive the letter, you can file a Form 1040X (for an amended return) to receive the refund. There are two different ways to calculate the amount due you if you don’t get a DOD letter with the amount.

  • Simplified Default Method. Write Disability Severance Payment on line 15 of Form 1040X and claim the amount based on the default. This is calculated as:

$1,750 per year for tax years 1991 – 2005

$2,400 per year for tax years 2006 – 2010

$3,200 per year for tax years 2011 – 2016

  • Actual Calculation. For veterans who had been in the military longer or were higher ranking officers, it’s generally better to use the actual calculation.

The lump sum payment was shown as taxable and it should not have been. If you, for example, you received $10,000 in a lump sum payment, your refund would be based on the tax rate. For example, if you had a 25% tax rate, you would receive $2,500.

Since this goes back 15 years, it’s very likely that most veterans won’t have their old tax returns. In fact, the IRS records only go back 7 years. Normally, you have to submit copies of past returns as filed, but it’s unlikely that will be possible. The IRS has not stated whether they will waive that requirement.

The safest plan would be to use the default amount. If you have past copies, use those to calculate which is best. The riskiest would be to use your best guess. The IRS may accept that, but we have no guarantee of that.

Disability Severance claims should be mailed to:


333 W Pershing St, Stop 6503, P5

Kansas City, MO  6410

If the service member is deceased, the trustee can file on his or her behalf using Form 1040X accompanied by Form 1310 (Statement of Person Claiming a Refund Due to a Deceased Taxpayer.)

If you need more information or help filing, the Veteran’s Administration legal services should help. You can also get help from the organization that found the mistake and threatened a lawsuit on behalf of vets. They can be reached at

We’re dedicated to helping you legally pay the least amount of taxes. Sometimes that means doing things differently. If you’re willing to do that, make sure you sign up to receive emails that alert you to important tax news and strategies. Sign up HERE


  1. sir
    i was injured in boothcamp and i stayed from march 25 1999 to 12 July 1999. i did not get any severance lump sum pay.Am i qualified,to file va 1040x.

  2. Diane Kennedy says:

    Thank you for your service.

    This miscalculation was only on lump sum payments, so it looks like you would not qualify to file the Form 1040X for a tax refund.

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