MonticelloLive

U.S. Senator Blanche Lincoln announced that her proposal to protect our nation’s disabled veterans from being unfairly taxed is now law.
 
“We must ensure that our veterans receive the care and services their commitment to our country has earned,” Lincoln said.  “In dealing with the disability claims process, veterans and their families should not be penalized for delays beyond their control.”
 
Lincoln’s provision to protect disabled veterans from being unfairly taxed is part of the Heroes Earnings Assistance and Relief Tax (HEART) Act of 2008, which the President signed into law Tuesday.
 
While the Department of Veterans Affairs (VA) resolves most of its disability claims in less than a year, there are instances of lost paperwork, administrative errors, and appeals of rejected claims that often delay thousands of disability awards for years.  When this occurs, disability compensation is awarded retroactively and a disabled veteran’s previous military retiree pay, on which the veteran has already paid federal income taxes, is re-designated as nontaxable disability compensation.  The disabled veteran is then entitled to a refund of taxes paid and must file an amended tax return for each applicable year. 
 
However, under current law the IRS Code bars the filing of amended returns beyond the last three tax years.  As a result, many disabled veterans are denied the opportunity to file a claim for repayment of additional years of back taxes already paid even though the IRS owes them a refund for those years.
 
Lincoln’s provision adds an exception to the IRS Code for amending returns. This exception allows disabled military retirees up to five years (the maximum amount of time the IRS keeps tax records) to amend previously filed returns—a necessary fix for thousands of veterans whose disability claims are pending for more than three years.  As under current law, once the VA has determined a veteran is owed his or her disability refund, the veteran has one year to go back and amend tax returns up to the previous three years. 
 
In addition to the veterans tax fairness provision, the HEART Act includes several provisions Lincoln has championed from her seat on the tax-writing Finance Committee.  These provisions, now law, will do the following:
 
Expand and make permanent the qualified mortgage bond program for veterans;
Permanently extend the election to include combat pay as earned income for the earned income tax credit (EITC);
Provide a tax credit for small employers of Reservists and National Guardsmen called for active duty;
Permanently expand penalty-free withdrawals from retirement plans for Reservists called to active duty;
Allow for a roll-over of military death gratuities for survivors to tax-favored accounts; and
Treat state payments to service members as nontaxable gifts.