H.R. 5015, Combat-Injured Veterans Tax Fairness Act of 2016, as amended

H.R. 5015

Combat-Injured Veterans Tax Fairness Act of 2016, as amended

Committee
Ways and Means

Date
December 5, 2016 (114th Congress, 2nd Session)

Staff Contact
John Huston

Floor Situation

On­­­­ Monday, December 5, 2016, the House will consider the H.R. 5015, the Combat-Injured Veterans Tax Fairness Act of 2016, as amended, under suspension of the rules. H.R. 5015 was introduced on April 20, 2016, by Rep. David Rouzer (R-NC) and was referred to the Committee on Armed Services, and in addition to the Committee on Ways and Means.

Bill Summary

H.R. 5015 allows veterans to recover income taxes that were improperly collected by the Department of Defense on certain disability severance payments. Specifically, the bill directs the Department of Defense to identify severance payments to veterans with combat-related injuries paid after January 17, 1991, from which the Department of Defense withheld amounts for tax purposes, and the individuals to whom such severance payments were made.

The Department of Defense would be required to provide each such veteran with information about the amount of improperly withheld severance payments, and instructions for filing amended tax returns to recover such amount. The bill extends the period for filing a claim with the Internal Revenue Service relating to the over-withheld amount for a refund or credit to the date that is one year after the Department of Defense provides the veteran with the information required by the bill.  Under current law, most individuals are only able to receive tax refunds from the IRS for up to three years after they file their taxes.

Lastly, the bill requires the Department of Defense to ensure that amounts are not withheld for tax purposes from severance payments to veterans with combat-related injuries when such payments are not considered gross income under the Internal Revenue Code.

Background

Under federal law, veterans who suffer combat-related injuries and who are separated from the military are not subject to tax on the one-time lump sum disability severance payment they receive from the Department of Defense. Unfortunately, tax amounts nonetheless have been withheld from combat-related disability severance payments to qualifying veterans for a number of years, in part due to limitations in the Department of Defense’s automated payment system.[1] According to the bill sponsor, more than $78 million is owed to an estimated 14,000 veterans because of this error.  Veterans are typically unaware that their benefits were improperly reduced as a result of the Department of Defense’s actions. H.R. 5015 instructs the Department of Defense to identify and notify those who wrongfully had amounts withheld and enables such veterans to file amended tax returns with the IRS in order to have the improperly withheld amounts refunded or credited .

According to the bill sponsor, “Our soldiers, sailors, airmen and Marines risk their lives every day to protect our freedoms. My bill is a common-sense solution to ensure that every veteran who has had their severance payments improperly taxed receive every penny that they are rightfully owed.  These veterans deserve no less for their service and sacrifice to our nation.”[2]

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[1] See National Veterans Legal Services Program Press Release, “Bill to Protect Combat-injured Veterans’ Severance Payments Passes Senate Finance Committee,” April 21, 2016
[2] See Rep. David Rouzer Press Release, “Rouzer introduces bill to protect combat-injured veterans from being wrongfully deprived of their full severance,” May 17, 2016.

Cost

The Joint Committee on Taxation staff has estimated that the bill would reduce Federal tax receipts by less than $500,000 in each of fiscal years 2018 and 2019 as well as in aggregate over the 2017 to 2026 budget window.

Additional Information

For questions or further information please contact John Huston with the House Republican Policy Committee by email or at 6-5539.