WASHINGTON – U.S. Sen. Mark R. Warner’s (D-VA) legislation to ensure that veterans who suffer service-ending combat-related injuries are not improperly taxed on the severance payment they receive from the Department of Defense (DoD) has passed the Senate Finance Committee.

Under federal law, veterans who suffer combat-related injuries and who are separated from the military are not supposed to be taxed on the one-time lump sum disability severance payment they receive from DoD. Unfortunately, taxes on combat-related disability severance payments have nonetheless been withheld from qualifying veterans for a number of years, in part due to the limitations of DoD’s automated payment system. Veterans are typically unaware that their benefits were improperly reduced as a result of DoD’s actions.

To correct this problem, last month Sen. Warner and Sen. John Boozman (R-AR) introduced S. 1712, Combat-Injured Veterans Tax Fairness Act of 2016. The legislation instructs DoD to identify veterans who have been separated from service for combat-related injuries and had taxes withheld from their severance payments. It requires DoD to determine how much the veterans are owed and, in conjunction with the Treasury Department, allow veterans who have been improperly taxed to recover the withheld amounts.

The bill language was added as an amendment to the Taxpayer Protection Act of 2016, which passed the Senate Finance Committee Wednesday night. The amendment was sponsored by Finance Committee members Sen. Warner, Sen. Michael Bennet (D-CO), and Sen. Richard Burr (R-NC).

“The intent of Congress, federal law and Department of Defense policy are all very clear: Service members separated as a result of combat-related injuries are not to have their severance pay taxed,” said Sen. Warner. “It’s pretty unbelievable that Congress has to act in order to ensure that the law is followed and that veterans who have already sacrificed so much are able to recover every penny they’re owed, but I’m pleased that my colleagues on the Senate Finance Committee agreed that we need to make this right.”

“Senator Warner and I introduced this bill to right a wrong at the Department of Defense. It is apparent that some combat-injured veterans have been deprived of their full severance upon separation by DOD despite federal law prohibiting this action. It is unjust and needs to be corrected. I am pleased that the Finance Committee cleared our bill today as that puts us one step closer to ensuring that our nation’s wounded veterans receive the benefits they are rightfully due,” Sen. Boozman said.

“Our military men and women sacrifice so much in service to our country. It is unconscionable that after a combat-related injury ends their military service they would have to pay taxes on their severance pay,” said Sen. Bennet. “This bill makes a commonsense change to ensure this never happens again and also allows veterans to recover the taxes that were improperly taken from them.”

“The Defense Department has for years mistakenly withheld taxes from the benefit payments of our wounded service members,” Sen. Burr said. “Knowing that our most deserving, combat-wounded veterans did not receive their full benefits promised to them is an insult to those who have made great sacrifices for our country. Let’s get this legislation passed as soon as possible so we can make this right.”

The problem was originally identified by the National Veterans Legal Services Program (NVLSP), an independent, nonprofit veterans service organization that has served active duty military personnel and veterans since 1980. NVLSP estimates that over 13,800 veterans potentially have been denied full severance pay as a result of wrongful taxation, including 720 veterans in Virginia.  

“The government took more than $11,000 from my disability severance check after I was involuntarily separated from the Navy due to combat-related disabilities,” Leon Hill of Norfolk, Va., said. “During my medical discharge proceedings, I received very little guidance. No one ever explained the tax issue to me. I didn't even know I had been shortchanged until Mr. [Tom] Moore from NVLSP called me to explain the issue. Now I understand that there is no way to recover the money that was taken from me without this legislation.”