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Severance Pay & Taxes

severance taxes

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#1 yosh1234

 
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Posted 20 July 2012 - 12:58 AM

My question is about severance pay and taxes paid on that severance pay. Recently, literally today, it has come to my attention that if the VA rates a Vet disability we can reclaim that tax money paid with our severance pay. Basically, in a nutshell, will all the money paid in taxes, for me 2009, be refunded or is there some kind of gauge to measure how much to expect in return? Say if you paid $6000 you get roughly 10% of that back or is all $6K refunded to you? I just don't want any thing to come back and bite me. You know?

I called the IRS; I've seen crazy stuff about you need to submit corrected W-2's from DFAS, final orders, submit DD-214, blah, blah, blah & blah. The only thing the IRS said I need to send them is a 1040X, VA determination letter with the award and effective start date of that award letter. As well as the amount of my severance pay that was taxed. I have all this information.

My last concern is the deadline is Apr. 15, 2013 for me. I have an appointment with H&R Block Thursday. I will more than likely submit this 1040X to the IRS on the 26th-same day. My question is, can the government sit on this paperwork until Apr 16, 2013 next year and send me a reply back telling me that my 3 years are up and I am no longer entitled to that recoupment of tax monies paid? I could seriously see the government doing something like that if it is possible. You know how they can be!!!

Does anyone know what's up or have personal experience in this area? I think I am being over paranoid but if you lived my life you would be the same way.

#2 justrluk

 
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Posted 20 July 2012 - 08:45 AM

Maybe this will help:
http://www.pebforum....012/#post-56787

#3 jvretiredvet

 
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Posted 20 July 2012 - 01:50 PM

The following is somewhat out of order to the way you posted, but I think it flows nicely ....

Does anyone know what's up Yes, I do. or have personal experience in this area? Yes, I do.

The only thing the IRS said I need to send them is a 1040X, VA determination letter with the award and effective start date of that award letter. As well as the amount of my severance pay that was taxed. That's correct. Pretty much what IRS Pub 17 Page 53 Column 1 Paragraph 2 http://www.irs.gov/p...s-pdf/p17.pdf says, as well as the instructions for Form 1040-X.

Basically, in a nutshell, will all the money paid in taxes, for me 2009, be refunded or is there some kind of gauge to measure how much to expect in return? Say if you paid $6000 you get roughly 10% of that back or is all $6K refunded to you? After you file the 1040X, the severance pay due to disability/retroactive VA disability compensation has now magically been "recharacterized" from taxable to non-taxable income. However, any other income from 2009 still remains taxable. Also, there are miscellaneous tax credits, whose amount might change one way or another, because of the now reduced income. It's difficult to say what the exact affect is, ie., the additional refund might be.

BTW, this is valid for DISABILITY SEVERANCE PAY ONLY.

Also, be advised that you will be paid interest on the additional refund from April 15, 2009 2010 (oops, my bad, edited 7/22/2012) to the date the 1040X is processed. Early in 2013, you will receive a Form 1099-INT from the Treasury and this interest will be taxable income on this year's return (to be filed by April 15, 2013.

My last concern is the deadline is Apr. 15, 2013 for me. I have an appointment with H&R Block Thursday. Unless Herbie did your 2009 return, bring in your file copy of your 2009 return; if HRB didn't do the return and you don't have a copy, they can order a tax transcript. Be advised that Herbie charges $100-150 for amended returns, paid before you get the return(s).

I will more than likely submit this 1040X to the IRS on the 26th-same day. Amended returns cannot be eFiled, they must be "paper filed", ie., mailed in. Processing is in the 8-12 week range. I'd suggest certified, return receipt requested.

My question is, can the government sit on this paperwork until Apr 16, 2013 next year and send me a reply back telling me that my 3 years are up and I am no longer entitled to that recoupment of tax monies paid? Sure ... also, don't forget the Maya calendar suppositions for December 21, 2012, the possibility of some dam breaking and you being washed away, or any other personal cataclysm.

Put a little tick note in your files. If you mail the 1040X on or about August 26, you should expect your refund check in the late October-late November-ish time frame. If you haven't heard anything by mid-December, you can contact the Taxpayer Advocate Service http://www.irs.gov/advocate/, or go back and ask Herbie to check (they'll just get your tax POA and contact the Advocacy Service anyway).

I could seriously see the government doing something like that if it is possible. I can't. Seriously.

You know how they can be!!! No, I don't know how they can be.

My question is about severance pay and taxes paid on that severance pay. Recently, literally today, it has come to my attention that if the VA rates a Vet disability we can reclaim that tax money paid with our severance pay. Basically, in a nutshell, will all the money paid in taxes, for me 2009, be refunded or is there some kind of gauge to measure how much to expect in return? Say if you paid $6000 you get roughly 10% of that back or is all $6K refunded to you? I just don't want any thing to come back and bite me. You know?

I called the IRS; I've seen crazy stuff about you need to submit corrected W-2's from DFAS, final orders, submit DD-214, blah, blah, blah & blah. The only thing the IRS said I need to send them is a 1040X, VA determination letter with the award and effective start date of that award letter. As well as the amount of my severance pay that was taxed. I have all this information.

My last concern is the deadline is Apr. 15, 2013 for me. I have an appointment with H&R Block Thursday. I will more than likely submit this 1040X to the IRS on the 26th-same day. My question is, can the government sit on this paperwork until Apr 16, 2013 next year and send me a reply back telling me that my 3 years are up and I am no longer entitled to that recoupment of tax monies paid? I could seriously see the government doing something like that if it is possible. You know how they can be!!!

Does anyone know what's up or have personal experience in this area? I think I am being over paranoid but if you lived my life you would be the same way.


Edited by jvretiredvet, 22 July 2012 - 03:36 PM.


#4 yosh1234

 
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Posted 21 July 2012 - 09:00 PM

The following is somewhat out of order to the way you posted, but I think it flows nicely ....

Does anyone know what's up Yes, I do. or have personal experience in this area? Yes, I do.

The only thing the IRS said I need to send them is a 1040X, VA determination letter with the award and effective start date of that award letter. As well as the amount of my severance pay that was taxed. That's correct. Pretty much what IRS Pub 17 Page 53 Column 1 Paragraph 2 http://www.irs.gov/p...s-pdf/p17.pdf says, as well as the instructions for Form 1040-X.

Basically, in a nutshell, will all the money paid in taxes, for me 2009, be refunded or is there some kind of gauge to measure how much to expect in return? Say if you paid $6000 you get roughly 10% of that back or is all $6K refunded to you? After you file the 1040X, the severance pay due to disability/retroactive VA disability compensation has now magically been "recharacterized" from taxable to non-taxable income. However, any other income from 2009 still remains taxable. Also, there are miscellaneous tax credits, whose amount might change one way or another, because of the now reduced income. It's difficult to say what the exact affect is, ie., the additional refund might be.

BTW, this is valid for DISABILITY SEVERANCE PAY ONLY.

Also, be advised that you will be paid interest on the additional refund from April 15, 2009 to the date the 1040X is processed. Early in 2013, you will receive a Form 1099-INT from the Treasury and this interest will be taxable income on this year's return (to be filed by April 15, 2013.

My last concern is the deadline is Apr. 15, 2013 for me. I have an appointment with H&R Block Thursday. Unless Herbie did your 2009 return, bring in your file copy of your 2009 return; if HRB didn't do the return and you don't have a copy, they can order a tax transcript. Be advised that Herbie charges $100-150 for amended returns, paid before you get the return(s).

I will more than likely submit this 1040X to the IRS on the 26th-same day. Amended returns cannot be eFiled, they must be "paper filed", ie., mailed in. Processing is in the 8-12 week range. I'd suggest certified, return receipt requested.

My question is, can the government sit on this paperwork until Apr 16, 2013 next year and send me a reply back telling me that my 3 years are up and I am no longer entitled to that recoupment of tax monies paid? Sure ... also, don't forget the Maya calendar suppositions for December 21, 2012, the possibility of some dam breaking and you being washed away, or any other personal cataclysm.

Put a little tick note in your files. If you mail the 1040X on or about August 26, you should expect your refund check in the late October-late November-ish time frame. If you haven't heard anything by mid-December, you can contact the Taxpayer Advocate Service http://www.irs.gov/advocate/, or go back and ask Herbie to check (they'll just get your tax POA and contact the Advocacy Service anyway).

I could seriously see the government doing something like that if it is possible. I can't. Seriously.

You know how they can be!!! No, I don't know how they can be.


Thanks for your reply. It was very helpful. Not worried about the Mayan superstitions. The real Mayans don't even believe that. It was a great read and helped out tremendously. Thank you very much! Yes H&R Block did do my 2009 Tax Return. Shouldn't be a problem.

Edited by yosh1234, 21 July 2012 - 09:06 PM.


#5 jvretiredvet

 
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Posted 01 August 2012 - 01:19 PM

Just nosy ... how did your appointment with Herbie go?

Thanks for your reply. It was very helpful. Not worried about the Mayan superstitions. The real Mayans don't even believe that. It was a great read and helped out tremendously. Thank you very much! Yes H&R Block did do my 2009 Tax Return. Shouldn't be a problem.



#6 jvretiredvet

 
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Posted 26 October 2012 - 03:30 PM

Just a reiteration for those who receive a retroactive VA disability determination ... nothing new, but it always bears repeating http://www.irs.gov/I...ns-for-Veterans .

BTW, this link applies to disabled veterans who are retired military or those who separate with disability severance pay.

#7 iceturkee

 
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Posted 28 October 2012 - 12:30 PM

i was fortunate in that my severance pay from the navy was tax free because of my service dates. the navy rated me 10 percent. about a month after my discharge, the va also rated me 10 percent. they immediately started witholding my check to recoup the money the navy paid me. this was summer of 1988.

#8 akqueen01

 
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Posted 28 November 2012 - 11:20 PM

A statement was made that this only applies to disability severance? Can the tax I paid last year on involuntary separation pay ($25k) be recouped as well since the VA is taking the non-taxed amount back ($75k)? I really feel taken for having to pay taxes on money I don't get to keep.

Thank you so much for your time and any assistance!

#9 yosh1234

 
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Posted 14 December 2012 - 02:36 AM

I'm not sure of the difference between involuntary separation pay and disability pay in legal terms but if the VA has you rated for a certain condition that you were involuntary separated for then I do not see why you can't at least try; HOWEVER, it would definitely be an uphill battle to fight. It may hurt just a little though, but the benefits are worth the little pain you go through.

Let's say you were involuntary separated for being overweight, all speculation of course, and you have a record of a bad thyroid while you served on active duty, from a non DoD Provider or DoD provider, BUT NO RECORD prior to active duty. Then, you present that evidence to the VA and they grant you a disability based on a bad thyroid-IF THAT'S EVEN POSSIBLE. Then, I would say there is a possibility. You see how the two can interlink? If they say no, then keep appealing. Eventually you will *probably* win.

You would have to do more research on your own. We all have different things going on in our lives. This is just a great board to help point us in the right direction. It would require a little bit of work on your own time to find out the facts. I am just speculating with the above scenario. I am not sure if the VA rates bad thyroids or not. I think thyroids can be removed if they are bad. I dont know; like I said, it would require more research on your end. That FACTUAL information you gather while researching your case can be used as evidence to help uphold your case too. I KNOW THAT FOR A FACT.

MORAL OF THE STORY: IT DOESN'T HURT TO TRY; JUST CHECK THE FACTS YOURSELF

Also, keep in mind the law limits citizens to 3 years to amend prior returns. For example, myself, I filed my tax return in 2009 for my severance pay. The law allowed me until 4/15/2013 to make an amended return. The three years starts on the due date of that years taxes. So, 2009 I had until approx. 4/15/2010 to file. Then, the 3 years starts to tick down. It DOES NOT go from the date you submit your tax forms. IT STARTS AT THE DUE DATE OF THAT YEARS TAXES. Kind of confusing. I know. Read it a couple of times. It will sink in. I received my federal but still waiting on state. State takes forever. This was ALL purely by luck too. I already had EVERYTHING in my possession. I just submitted it.

Just do your research and you will know for sure. I can tell you now, justrluck has been a tremendous assistance on pointing me in the right direction. Just remember, nobody is going to hold your hand and walk you down the isle. You have to do the research yourself. Not being harsh; just honest.

Edited by yosh1234, 14 December 2012 - 02:38 AM.


#10 yosh1234

 
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Posted 14 December 2012 - 03:03 AM

Just nosy ... how did your appointment with Herbie go?

It went well. Already received my federal return and currently waiting for State. State is a slow mover. They say to wait 6 months for your return. By the end of this month they should have it processed. I will call at the end of this month to find out for sure, but with the holidays I am expecting delays.

Edited by yosh1234, 14 December 2012 - 03:03 AM.


#11 jvretiredvet

 
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Posted 14 December 2012 - 01:08 PM

At this moment I am not inclined to go into the Internal Revenue Code so I will respond with references from IRS consumer guides. But if you want to go to the source: USC 26 http://www.law.corne.../uscode/text/26 . Section 61 discusses what is taxable income (basically, eveything is taxable unless specifically excluded by law). Section 104 covers disability.

A statement was made that this only applies to disability severance? Yep, purt' much so. The 2011 IRS consumer guide Pub 17 Page 53 http://www.irs.gov/pub/irs-pdf/p17.pdf states:

However, you must include in your income any lump-sum readjust-
ment or other nondisability severance payment you received on
release from active duty, even if you are later given a retroactive
disability rating.

Can the tax I paid last year on involuntary separation pay ($25k) be recouped as well since the VA is taking the non-taxed amount back ($75k)? I really feel taken for having to pay taxes on money I don't get to keep. The technical answer is that you did receive the entire $100k package, of which $25k was Federal income tax withholding (25% is required on all such lump sums). Remember, unless specifically excluded, it is taxable. Depending on your other income(s), filing status, exemptions, deductions, and your true marginal tax rate, you might have already received some part of that $25k back as a refund.

The only recourse I can see is for you to somehow change the actual circumstances of your non-disability discharge with severance pay to a disability discharge with severance pay. This would be a long shot in any case.

A statement was made that this only applies to disability severance? Can the tax I paid last year on involuntary separation pay ($25k) be recouped as well since the VA is taking the non-taxed amount back ($75k)? I really feel taken for having to pay taxes on money I don't get to keep.

Thank you so much for your time and any assistance!



#12 yosh1234

 
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Posted 18 December 2012 - 03:31 PM

Basically, you would have to get your initial discharge changed AND you would have to get your rating through the VA in order to have that years tax money you paid refunded back to you. It can be done. You just have to gather the facts and submit it ALL as evidence to uphold your claim. Just remember you have three years for IRS purposes. I guess they figure that's enough time. HOWEVER, even if you don't meet the IRS's deadline, I would still try to get my rating changed. In my opinion it would look better than an involuntary separation which is open for speculation as to what really happened. There's more than one way to skin a cat. In my life it works like this, the more I want the less I get and the less I want the more I get.

Edited by yosh1234, 18 December 2012 - 03:43 PM.


#13 Chuck75

 
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Posted 18 December 2012 - 10:26 PM

A somewhat related area has to do with local taxes, such as those disabled veterans are exempt from.
Real estate and related taxes have a date to claim the exemptions, after which the veteran cannot obtain the exemption for the tax year in question.
When the VA delays a disability award for years, this can result in a disabled veteran being forced to pay the real estate and other taxes that would not have been due
had the VA acted in a prompt and reasonable time frame.

I seem to remember some convoluted reasoning, based upon recovery of expenses, that the VA, in a proper time frame, might have some obligation to pay expenses incurred due to the delays.
There is also contrary language in the laws concerning the VA and compensation. Anyone ever heard of this, or successfully recovered losses due to the VA's delays?

#14 jvretiredvet

 
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Posted 19 December 2012 - 05:09 PM

You've got almost everything correct except for the statute of limitations for refunds. Prior to June 2008, the SOL was in fact 3 years. The HEART Act (PL 110-245) changed the SOL somewhat for retroactive VA disability determinations, either for retired military or for those who received a military lump-sum disability severance pay. That act allowed me to amend my 2002 return in 2009, but that was an exception for us old farts.

Special statute of limitations. In most
cases, under the statute of limitations a claim for
credit or refund must be filed within 3 years from
the time a return was filed. However, if you
receive a retroactive service-connected disabil-
ity rating determination, the statute of limitations
is extended by a 1-year period beginning on the
date of the determination. This 1-year extended
period applies to claims for credit or refund filed
after June 17, 2008, and does not apply to any
taxable tax year that began more than 5 years before the
date of the determination.

So, depending on dates, we're either looking at a usable Statute of Limitations, or conversely Shit Outta' Luck.

Basically, you would have to get your initial discharge changed AND you would have to get your rating through the VA in order to have that years tax money you paid refunded back to you. It can be done. You just have to gather the facts and submit it ALL as evidence to uphold your claim. Just remember you have three years for IRS purposes. I guess they figure that's enough time. HOWEVER, even if you don't meet the IRS's deadline, I would still try to get my rating changed. In my opinion it would look better than an involuntary separation which is open for speculation as to what really happened. There's more than one way to skin a cat. In my life it works like this, the more I want the less I get and the less I want the more I get.



#15 yosh1234

 
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Posted 20 December 2012 - 12:33 AM

When I called the IRS, they told me 3 years. They said there are exceptions but since I fall within the Statue of Limitations that I do not need to worry. I suppose what you mentioned is what they were referring to. Certainly great information to know for those who need it. Thanks. Will tell others as necessary.

Edited by yosh1234, 20 December 2012 - 12:35 AM.