Over 130,000 wounded warriors eligible for tax refunds dating back to 1991

Over 130,000 wounded warriors eligible for tax refunds dating back to 1991 (File Image)

An alert for more than 130,000 wounded warriors—over the next few weeks, the Department of Defense will be sending out notifications to combat-injured veterans eligible for tax refunds.

Virginia Senator Mark Warner says that's because the military heroes paid federal taxes on their one-time, lump-sum disability severance payments—but they weren't supposed to.

"For years, wounded combat veterans had their disability severance pay improperly taxed because of a technical glitch in the Pentagon's computer system," Warner said in a statement. "When I found out about this, I teamed up with my friend Senator John Boozman, a conservative Republican from Arkansas, and we worked together to pass the Combat-Injured Veterans Tax Fairness Act."

That legislative fix was unanimously approved in 2016. And starting this month, the DoD will begin sending out notifications to the more than 130,000 impacted veterans who are owed money dating back to January 17, 1991.

"These are vets with combat-related disabilities that are deserving of these entitlements, and because of something like a design flaw, a glitch, they're out thousands of dollars. And most of them, at least the ones I've spoken to, weren't even aware of this issue," said Tom Moore, senior staff attorney with The National Veterans Legal Services Program.

Moore and his organization were first to identify the problem and bring it to the attention of lawmakers like Warner.

"Literally the only way we could get this money back for them was through an act of Congress," said Moore.

ABC7 asked the Department of Defense exactly how much money those veterans are now owed. DoD said they couldn't provide an exact number because the refunds vary for each eligible veteran.

A spokesperson said the disability severance payment is computed by calculating a service member's year of service multiplied by two times their basic pay, and the basic pay amount differs depending upon the rank of the service member. Then, if that veteran paid federal taxes on his or her disability severance payment, the withholdings would be calculated by the IRS Tax Tables applicable to that specific tax year and based upon the individual's filing status.

"I sustained an injury when I was deployed," said 26-year-old Richard Fahlman, who joined the U.S. Army in 2011. "So I had an L4-L5 vertebra, slipped disc in my spine. And they told me I was too young to have surgery to have it fixed, so I was medically separated after that."

Fahlman has yet to receive any kind of notification from the DoD but believes he may be among the veterans impacted by this mistake.

"I received my disability severance payment but they taxed it. When apparently they weren't supposed to," he said.

For years, Moore says most of these combat-injured veterans lost between 25 and 28 percent of their total disability severance payments to federal taxes, even though federal law says they should not be taxed.

He says disability severance payments can be anywhere between $10,000 and $100,000.

"So that veteran who is getting a $50,000 disability severance payment, it should be tax-free. But because of this glitch, they've had roughly $13,000 wrongfully withheld from their severance payment," he said.

Warner's legislation requires the DoD to correct the problem moving forward. It also says DoD must determine how much each veteran is owed and notify them personally, so they can recover the withheld amounts. Eligible veterans will have a year to file a claim for the refund upon receiving notice that they're owed money.

"You're getting medically separated for an injury sustained in combat, so I feel like they should be doing everything they can to make sure we're finding out way into the civilian world seamlessly," said Fahlman.

He feels that refunding the money is the right thing to do.

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