3 - Post-military and retirement: VA offset
Retirement, VA benefits, and taxation can be relatively complicated, and you might not receive a lot of help figuring them out. Those retiring today know the VA disability adjudication process can last months, if not years, resulting in retroactive benefits and convoluted tax consequences.
Under current law, veterans rated less than 50-percent disabled will have their military pensions reduced by a dollar for every dollar they receive in VA disability compensation. This reduction also applies to a retroactive disability compensation award. But your pay prior to the determination is never adjusted, and your 1099-R will only be accurate for dates after you begin to receive VA disability compensation.
To correct this, under the Strickland Decision and IRS Ruling 78-161, you have the right to retroactively reduce your military pension by the amount of VA offset that should have been taken. You might be able to reduce your tax bill by hundreds to thousands of dollars for the time you were waiting for a determination. You also can go back to previous tax years and file amended returns.
What about those who are rated 50-percent or more disabled? If you receive Concurrent Retirement and Disability Pay (which most military retirees do), the tax benefits will be negligible and in 2014 will cease completely. However, if you receive Combat-Related Special Compensation for all or a portion of your disability, you also could see significant tax benefits.
MO
— Col. Curt Sheldon, USAF (Ret), is an Enrolled Agent, an Accredited Investment Fiduciary®, and president of C.L. Sheldon & Co. LLC. This is his first feature article for Military Officer.
Be sure you are aware of your tax benefits, and take full advantage of what the law allows. This article is not all-inclusive, and many other military tax benefits are available. For more information, read IRS Publication 3, Armed Forces’ Tax Guide at
www.irs.gov. MOAA also offers tax tips and tools at
www.moaa.org/financialcenter.
FEBRUARY 2014 MILITARY OFFICER 63
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