Military Retirement, VA Benefits and a Guy Named Strickland

Ah, January.  A fresh start and a time to start thinking about filing your taxes.  What could be better?  If you are a recently retired military veteran you have some extra things to think about when it comes to your taxes.  It involves retro-active VA Disability Compensation, your retired pay and something called the Strickland Decision.  Let me explain.

First of all, based on current case loads at the VA you won’t (or didn’t) receive your VA Disability Compensation immediately after your retirement.  So you will receive retro-active VA Compensation  (at least I haven’t found anyone who didn’t in the last 5 years).

Once you do get a VA Disability Rating and the associated compensation your military retired pay will be adjusted…down.  That is because VA Disability Compensation is offset with a reduction in your retired pay.  If you are less than 50% disabled, the offset is dollar for dollar.  If you more than 50% disabled the offset is much less (and in fact will go away in 2014).  From the date of your rating forward your pay (and resulting taxes) will be right.  But…

No one will ever go back and adjust your retired pay for the period you were waiting for your disability rating.  So your 1099-R (the form where your retired pay is reported) will have an income that is too high and you’ll pay more taxes than you really owe.

A Vietnam era retired military member challenged this in court and won.  In the Strickland Decision the court said that retired military members can reduce their military retired pay by the amount that should have taken out as a VA offset.

Take a look at your own situation and consult with your tax professional to see if you should adjust your current year tax return or previous year returns (generally limited to 3 years).

About the author

Curt Sheldon, EA, MBA

4 Comments

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  • What can be done about holding VA responsible for paying back those taxes for 2012 for those veterans who just found out about the amended taxes and missed the deadline for 2012. I just found out about it and as filed but will not get what is owed from 2012.

  • Just found out about the Tax amendment for VA benefits. My tax guy is working on filing. Unforturnately its too late for 2012. Is there anything veterans can do to have the VA pay us back that money from 2012? There are still veterans who do not know about this. I am trying to spread the word to as many as possible. My colleague just received $18,000.

  • I did not get a response to the above statement and prediction I was in with the California Franchise Tax Board. Now I am have the same problem with the IRS. As I stated above I am 100% CRSC disable, (VIET NAM). I retired with 24 years od honorable service. I elected to receive a Military Disability after be awarded 100% VA disability. I therefore receive a military disability in lieu of a military retirement and a VA disability compensation. In accordance to the Strickland Decision (IRR 78-161) of June 11, 2013, I should be exempted from State and Federal income taxes. This some how seem to be over the heads of “some” IRS tax personnel, because they are determined to assess me with the retro- active taxes for the year of 2013, whereas my 100% CRSC disability was retro -active as far back as 2010 to present. It seem as if this is in dire violation of the court decree in the Strickland Decision.

  • I am a retired AF Korean /Viet Nam combat veteran with a 100% disability from the VA and I am CRSC approved. In 2013 the VA awarded me 100% disability, retro-active to 2010. All of my 1099R under my military retirement from DFAS stated my full retirement pay per each year. In 2014, filing my taxes for the previous year 0f 2013 and amendments for the years 2010,2011, the Internal Revenue honored the amendments. The state of California has not, stating that my income was that as was originally annotated on my 1099R for the stated above years. The tax amendments submitted with the California returns were ignored. Please any suggestions will be gladly appreciated. ED

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