Tax Consequences of Offsets

Gao ID: NSIAD-96-74R December 22, 1995

Pursuant to a congressional request, GAO examined the tax consequences to veterans of the required offset of certain types of Department of Defense separation pay and Department of Veterans Affairs disability compensation, focusing on whether veterans could: (1) reclassify separation pay as disability compensation; and (2) deduct recouped separation pay from gross income. GAO noted that according to the Internal Revenue Service, veterans may: (1) not reclassify separation pay as disability compensation; (2) not deduct recouped separation pay from gross income; and (3) retroactively exclude part of their lump-sum separation pay from gross income if they also qualify for disability compensation.



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