• FreeAdvice has a new Terms of Service and Privacy Policy, effective May 25, 2018.
    By continuing to use this site, you are consenting to our Terms of Service and use of cookies.

Army Student Loan Repayment Tax Liability

Accident - Bankruptcy - Criminal Law / DUI - Business - Consumer - Employment - Family - Immigration - Real Estate - Tax - Traffic - Wills   Please click a topic or scroll down for more.

carnelli53

Junior Member
My question is in regards to tax liability for the Army SLRP as I believe something has gone drastically wrong in my case.

The program stipulates that after one completed year of service, the servicemember will become eligible for payment up to 33 1/3 or $1,500 dollars (whichever is greater) on their total student loan debt (up to 65k repayable through program).

My first year of service was from my BASD 6/5/2007 through 6/5/2008. I was in Iraq from December 2007 to June 2008.

Now my total student loan debt is about 64.5k so I'm eligible for the max 33 1/3 payout each year. They informed me that it was a taxable lump sum and when I read the regulations that govern these payments (5 U.S.C. 5379, 5 CFR Part 537, 5 U.S.C. 2105, IRS Publication 3, and Income Tax Reg. 1.112-1) there were two important things I took note of:

1) The federal agency (Army) is responsible for witholding the proper amount of federal income tax PRIOR to making the lump sum payment to the lender. They offer an example if there was a $10,000 dollar payment and a $3,000 tax liability than the lender would only receive $7,000. I took this is a common sense on the Army's part and since NOBODY at the ACES (Army Continuing Education System) or SLRP administrators at Army HRC claimed to have anything to do with it (they said DFAS would handle it) I really had no where to turn and was forced to wait until the payments were made to see what happened.

2) Specifically in Publication 3 of the IRS concerning military tax matters, if the servicemember was in a combat zone for any part of the year that counted as a year of payment (i.e. June 2007-November 2007 stateside, December 07-June 08 Iraq) that portion of the year should be considered nontaxable as far as the lump sum payment. I confirmed this was the IRS. The government obviously saw no reason to provide further instructions on how to determine the amount to be nontaxable.

So to get to my question. The Army sent me two W-2s. One has all my base pay, taxes paid, nontaxable combat zone pay, and the like. I have no problems with the first W-2.

The second W-2 simply has my name, my ssn, employer's name, employer's ssn, and the lump sum amount in the 'wages, tips, and other compensation' box and nothing else is filled out. No taxes were drawn or put against this amount. I checked with my lenders and they say they received the exact amount on my W-2 - even know it was the Army's duty to ensure that proper taxes were withheld! So now when I run this info through my tax program I end up owing several thousand in taxes. DoD is clueless, the Army is clueless, DFAS is surprisingly the most clueless, and the IRS helped me as much as they could.

Can anyone point me in the right direction here? I really don't know how to handle this situation. I just know that those regulations are on my side. Thanks in advance.
 


wimmerb

Junior Member
Same issue

Did you ever receive a response to this? I was an Army reservist two years ago and received two payments. I never got the W-2 and now, 3 years later the IRS wants their money...
 

ecmst12

Senior Member
Would probably help if either of your posted your question in the right forum, this one is for auto accidents.
 

Find the Right Lawyer for Your Legal Issue!

Fast, Free, and Confidential
data-ad-format="auto">
Top