WASHINGTON—Legislation introduced by U.S. Senators John Boozman (R-AR) and Mark Warner (D-VA) to ensure that veterans who suffer service-ending combat-related injuries are not taxed on the severance payment they receive from the Department of Defense (DOD) cleared a major hurdle when it was approved by the Senate Finance Committee yesterday.

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 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.

Boozman and Warner’s bill, the Combat-Injured Veterans Tax Fairness Act of 2016, corrects this problem by directing DOD to identify veterans who have been separated from service for combat-related injuries and received a severance payment. The bill instructs DOD to determine how much the combat-wounded veterans are owed and 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. The amendment was sponsored by Finance Committee members Sen. Warner, Sen. Michael Bennet (D-CO) and Sen. Richard Burr (R-NC).

“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 yesterday as that puts us one step closer to ensuring that our nation’s wounded veterans receive the benefits they are rightfully due,” Boozman said.

“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,” Warner said. “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.”

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 165 veterans in Arkansas and 720 veterans in Virginia.