I have been paying taxes on my military pension for the past 3 years. I recently found out that I my pension is tax exempt. How do I file a 1040-X to get my money back?

Forum|Forum|1 year ago
August 10, 2024
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I retired from the Army in 2020. I was then awarded 100% disability from the VA. According to IRS Publication 525, certain military pensions are tax exempt if you were later found to be disabled. I applied for exemption through the Defense Finance and Accounting Service (DFAS), which is where I receive my pension, and was awarded tax exemption in July of this year (2024). Now I am trying to get the money I have paid in taxes back for the past 3 + years. I researched publication 525, and it appears that I can file Form 1040-X to get that money back for the years I paid taxes on my pension. While the IRS has instructions on filling out the form, it is a bit confusing, so I was wondering if anyone had any experience with filling out a 1040-X? Thank you in advance for any assistance you may be able to provide. -Danny

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dannyestep1Author

This is basically what I’m reading. I retired based off years of service then was awarded VA disability:

Retroactive VA disability determination

If you retire from the Army based on years of service and are later given a retroactive service-connected disability rating by the VA, your retirement pay is excluded from income up to the amount of the VA disability benefits you would have been entitled to receive. You can claim a refund on any taxes paid on the excludable amount by filling an amended return on Form 1040x for each previous year during the retroactive period (subject to statute of limitations).

You may exclude 100% of any severance benefit from your income if you receive a lump-sum disability severance payment and are later awarded VA disability benefits. However, any lump-sum readjustment or other non-disability severance payment you receive upon your release from active duty must be included in your income even if you are later given a retroactive disability rating by the VA.

DoninGA

Employee

When exactly did you start to receive VA disability benefits? Was it just recently?

None of the VA disability benefits paid are taxable nor reported on a tax return.

When you receive VA disability benefits and a military pension during a tax year, only the military pension is taxable.

dannyestep1Author

I started receiving disability pay after retirement. I know it is not taxable. However, the way the IRS publication 525 reads, once you are awarded disability, military pension should be tax exempt as well. DFAS changed my pension to tax exempt last month, I’m just trying to see if I can get all the taxes I paid over the past 3 years back. All they can do is tell me no, right? Lol

RangerVic

OK, first the different disabilities that are out there. You have military disability. Military disability can be (1) taxed and (2) untaxed. If your disability if found combat/combat related then it is untaxed. If it is just straight up service related it will be taxed. This is all independent of your VA disability. This is true if you retired under years of service (20+). Most would usually go through a medical board but not all and that is what it sounds like in Danny's situation. You did your "medical board" after the fact. You should already be receiving concurrent receipt. So you should be able to fill your 1040-X if you were awarded tax exemption for all or a portion of your pension. You will have to do the math manually. DFAS techs are not going to help you, and you may not want them to help you. Some have problems with some basic math.

I was 90% med board combat related retired but my time in service was 85%. Last year they gave me a 1099 for the 10% difference that DFAS retro paid because they initially capped me at 75%, but this year no taxes taken out so i'm not sure what's going on.