The Combat-Injured Veterans Tax Fairness Act of 2016 (HR 5015 ) was signed into law by President Obama on December 16, 2016. The new law “directs the Department of Defense (DOD) to restore improper tax withholdings from individuals separated from service,” according to a statement provided by the White House press secretary after enactment.

The Senate passed the measure on December 10, 2016 and the House passed the bill on December 5, 2016.

The new law requires a refund of money that was improperly withheld for tax purposes from severance payments to certain veterans of the U.S. Armed Forces. Generally, severance payments for veterans are separated from the Armed Forces because combat-related injuries are not considered gross income, but tax on many of these payments were improperly withheld.
The law extends the limitation on time for filing a claim for a credit or refund under Code Sec. 6511(a) allowing certain veterans to be restored of funds previously taken from their severances. The extension would run one year after the DOD provides the affected service members notice of the amount improperly withheld from their severance payments.

“Severance pay for service members who suffered combat-related injuries should not be taxed under any circumstance,” Sen. Mark Warner, D-Va., co-sponsor of the measure, said after Senate passage of the bill. “This legislation is a common-sense solution to ensure that these veterans who had their severance payment wrongfully taxed will receive every penny that they are rightfully owed,” Rep. David Rouzer, R-N.C., author of the House bill, said in a statement.