military disability separation pay

[MyAngst]

My husband was given a medical discharge due to an injury recieved during training. He was given a lump sum payment which was then taxed at 28%. During his out processing he was inform that the disablity pay is not taxable due to a court case a few years ago, however the military still deducts the tax. We have spoken with the IRS several times and are told we can only deduct what we would have been paid by the VA. However that in no way makes up for what was removed from his disability pay for taxes. One person from the IRS stated we could deduct the amount from our income, use an asterick to indicate a message and attach a letter explaining why we have done this. However, we don't want to bring the IRS down on our heads. Why is there not a form for this process? Is there another way to handle this difficulty? We would appreciate all the money the returned.

Thank you for any help you can give.

 

[ch]

I'm in the same boat

I am in a somewhat similar situation because I was medically discharged, but I was never told about the money not being taxable. Are you sure? The gov't overpaid me and now they are trying to make me pay taxes this year on money that is not even mine to keep. It is a long story, but if this is true that the money is non-taxable, I am set then. Where did you hear of this? Do you have it in writing? Please keep in contact with me if you find something out. I would be very grateful! Thanks!

 

[MyAngst]

Pub

My husband was told this information in his out briefings. But through more research I have uncovered information in Pub 17, Chapter 6, Sickness and Injury Benefits under Military and Certain Government Disability Pensions. There is a list of exclusions which make the money untaxable. You can look up the pub on the IRS site. This is the site listed at the bottom of what I printed out:

http://www.irs.ustreas.gov/plain/forms_pubs/pubs/pl170603.htm

However, because the money was included in the income on the W2 we have list it there and then remove the disability pay on line 21 using brackets. (This info came from the IRS.) We then have to include the reasons why this was done. We also have to prove that the injury was due to a training incident, which was written up in his medical records.

Good luck. Let me know if you need more information.

M.Angstadt