Military Money and Finance

MILITARY DISABILITY EXEMPTIONS
Programs Assist Injured Servicemembers

Military servicemembers who have suffered serious injuries resulting from their wartime service can get financial help thanks to two congressionally legislated military insurance programs.

Congress established the Traumatic Servicemembers Group Life Insurance (TSGLI) program in 2005 in response to the experiences of some former and current military members who found themselves financially strapped after they suffered severe injuries during the war against terrorism. Coverage applies to active-duty and reserve-component members.

"This (military insurance) program provides up to $100,000 per event, depending on (the type of) injury," according to Army Col. John Sackett, chief of the Combat-Related Special Compensation (CRSC) and and TSGLI divisions at U.S. Army Human Resources Command, in Alexandria, Va.

All servicemembers covered under military insurance known as Servicemembers Group Life Insurance program, whether active duty, reserve or National Guard, were enrolled for TSGLI coverage on Dec. 1, 2005.

The Army has paid out more than $126 million in military insurance under TSGLI.

The TSGLI benefit has both retroactive and prospective aspects. The benefit is provided retroactively for servicemembers who suffered severe combat-zone-related injuries between Oct. 7, 2001, and Dec. 1, 2005. The prospective aspect applies to servicemembers with injuries received "any time, anywhere" from Dec. 1, 2005, forward.

Currently, TSGLI doesn't offer compensation for veterans who've developed post-traumatic stress disorder as the result of battlefield service.

Yet, military veterans without military insurance to cover combat-zone-related Post-Traumatic Stress Disorder may be eligible for financial aid under the Combat-Related Special Compensation program, which became effective June 1, 2003.

The Combat-Related Special Compensation program provides compensation for eligible retired veterans with combat-related injuries who have 20 years of military service and have received a U.S. Department of Veterans Affairs disability rating of 10 to 100 percent.

There is currently legislation in Congress that would open up eligibility for both programs.

VETERANS ELIGIBLE FOR TAX REFUND FOR VA COMPENSATED WORK THERAPY PROGRAMS

Compensated Work Therapy programs are operated by the Department of Veterans Affairs, whereby eligible veterans receive payment for participating in therapeutic and rehabilitative work therapy.

For many years, the IRS treated payments made by the VA from the Special Therapeutic and Rehabilitation Activities Fund for work performed under CWT programs as part of a veteran's gross income, even though intended for therapeutic or rehabilitative purposes.

Today, Compensated Work Therapy payments are not subject to federal income tax, under the tax exemption of veterans' benefits.

In past years, veterans received a Form 1099 from the VA, reporting CWT receipts as taxable compensation, and veterans were instructed to include CWT payments in their gross income.

In 2007, the Tax Court ruled that a veteran's Compensated Work Therapy program payments made by the VA are exempt from federal income tax as ‘veterans' benefits.' The IRS now agrees with the decision of the Tax Court. Now, payments made by the VA from the Special Therapeutic and Rehabilitation Activities Fund for work performed under CWT programs are not includible in a veteran's gross income for federal tax purposes. Veterans will no longer be sent a Form 1099 from the VA for payments from the Special Therapeutic and Rehabilitation Activities Fund for work performed under CWT programs.

If you are a veteran who reported CWT program payments in your federal gross income in prior years, you can request a refund of federal income taxes paid as a result of including these amounts in your gross income in prior years.

Veterans may file amended income tax returns from which they can now exclude Compensated Work Therapy receipts. Use Form 1040X, Amended U.S. Individual Income Tax Return, for this purpose.

Though veterans are not required to amend past tax returns, it may be fiscally advantageous to do so. In general, you may amend any income tax return within 3 years after the date you filed the original return, or within 2 years after the date you paid the tax, whichever is later. This time is extended for certain veterans who are physically or mentally unable to manage their financial affairs.

Before amending any federal income tax return, veterans should consider the effect of excluding these amounts on their overall tax liability. Excluding CWT program payments from gross income may adversely affect other tax items that depend on taxable compensation.