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Is it taxable or not?

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C

ch

Guest
I was separated from the military involuntarily last year due to an injury that disqualified me from service. I was paid severence pay upon my discharge. The Gov't accidentally double paid me for the severence. I took action immediately to repay the amount (which was listed as an indebtedness on my final pay statement). I was told by the Defense Finance Accounting Service that I would have to wait until I was notified by mail to send the money back. They said it could take several months. FYI-No FITW was withheld for the overpayment. This all happened in June 2000. On January 7, 2001 I got a letter from them stating that it was time to pay the money back and it gave me some time to do that. Well, in the meantime, I got my W2 and I found out that they included the overpayment (which was listed as a DEBT on my final pay statement) in my earned income and was thus subject to Federal and state taxes. My thinking is that this was not disposable income for me and more or less is a debt to the US Government as stated on my pay statement. I called the Defense Finance Accounting Service and they said it was and will be included as taxable income and I am subject to taxes until next year when I get a tax credit certificate for next years taxes. Well, I don't have $8000 extra to pay for the tax bill for this overpayment and now the IRS wants to impose a penalty on me for not paying the taxes upfront on money that is not mine and was a mistake not on my part. What can I do to remedy this situation? What does the law state? Is there a loophole here that I am missing or am I just out of luck. If this is legal, what action can I take with the IRS to defer the payments until next year when it is straightened out? Can they defer the taxes until next year when I get the tax credit certificate? How can they impose penalties on me since this was not my fault? Please help! I feel like I am being taken advantage of. Thanks Chris Heizer
 


M

MyAngst

Guest
Chris,

I posted some information for you on my question about disabilty severance pay.

MyAngst
 
M

MyAngst

Guest
According to the Texas Veterans Comminnsion Journal the November/December 1992 issue, it states "This modification is the result of a year old U.S. District Court ruling (St. Clair vs. United States; E.D. VA., No 90-622) which held that lump sum payment of Disability Severance Pay may be exluded from the recipient's gross income under 26 U.S.C. 104 (a)(4)."

Also "Income tax refunds may be available ONLY for veterans who: 1. Subsequently apply for and obtain disability compensation from the Department of Veterans Affairs, on the basis fo the same disability for which they were severed from the service; and 2. Properly complete and file applications for income tax refunds within three years of contested tax payment."

"Veterans who wish to apply for refund under these limited circumstances should provide appropriate documentation: coppies of their DD 214's; copies fo their income tax returns for the year in question and ANY available military records which show the exact amount of their lump sum DSP."

It also says to call the IRS for more help. If you do call them be sure you have the court case number. I have called 4 times to no avail. They said if I had the number they may have been able to help me more. I have not called since my husband unearthed this article from the papers he was given at outprocessing.

Good luck.
 

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