Tax Penalty Rescinded


WASHINGTON, January 25, 1999 (GulfLINK) - An amendment to existing legislation will make thousands of disabled veterans eligible for a refund from the Department of Veterans Affairs. Others will be receiving disability compensation payment much earlier than previously anticipated.

The revision affects those veterans who accepted the lump sum Special Separation Benefit during the force drawdown and later qualified for V.A. disability compensation. Previous legislation mandated that recoupment of the after tax withholding amount would apply only to those SSB payments received on or after October 1, 1996. Those received prior to October 1 had to be recouped based on the gross amount paid. The amendment provides for recoupment of the amount paid after withholding for federal income tax and includes SSB payments made between December 5, 1991 to October 1, 1996.

Federal law prohibits veterans from receiving concurrent payment of both V.A. disability pay and service retirement or separation pay. When veterans who receive service or separation pay are found to be eligible for additional disability compensation, the V.A. withholds payment long enough to recoup the amount of the full separation pay. For example, if a separating member qualifies for an SSB of $40,000 and $10,000 was withheld for federal income taxes, the VA would withhold compensation until the entire $40,000 was recouped.

In 1996 Congress agreed that it was unfair to tax veterans for money they never received and changed the law to limit the amount of money that can be recouped to the net amount paid after federal income tax is withheld. To use the example above, the member who received $30,000 after taxes, will now be able to receive VA benefits after that $30,000 is exceeded. According to Ken McKinnon, a V.A. spokesperson, despite the fact that the amendment was passed in June, many veterans are not aware of the change.

"The V.A.'s 58 regional offices were notified in August and they have been working in coordination with the Department of Defense to identify those veterans who have been affected," he said.

The V.A. urges that veterans be insistent when making a request for repayment. Requests for an adjustment of an after tax recoupment balance must be accompanied by documentation showing the amount that was withheld for federal income taxes.

"Veterans who believe they are entitled to a refund should contact their local V.A. office at  1-800-827-1000 and request assistance in obtaining a refund of overpayments," says McKinnon.