Archive for the 'VA Benefits' Category

A Survivor Benefit—Arming Your Spouse with Knowledge

Aug 09 2012

From your days in uniform, when the boss gave you a task, any reason the task wasn’t accomplished as expected was met by the rebuke, “No excuses!” There’s no excuse for leaving a spouse unprepared to cope with life after the death of the military spouse.

I’m sure I’m speaking to a limited audience when I state there are military members leaving behind helpless survivors. We hear from only a sampling of the survivors left in the dark. But from the stories we hear, some are surprising to say the least. I wonder, and worry about, the ones we don’t hear from.

How will your spouse survive when you are gone? What programs do they need to know about? What agencies do they need to deal with? And most importantly, what will be their sources of income?

I find it hard to believe but survivors have called MOAA trying to find sources of income. The survivor goes from plenty of income when the military member is alive to a single Social Security check after the member’s death. Please discuss how your spouse will pay the bills, buy food, and have a life after you’re gone.

There are also survivors who find out after the member’s death, the SBP won’t be 55% of full retired pay. Many find the SBP will be 55% of a fraction of the military pay because the member covered only a small portion of the military retirement check.

Here are some suggestions…

First off, your survivor will need several months’ worth of cash to pay the bills and live on after your death. It will be months before other sources of income start—the government runs on its own schedule.

Second, have your retirement orders or DD 214 readily available.

Next:

  • Go over the accounts you own. Banks, investment firms, insurance companies…
  • What programs you have with the VA. Disability compensation, life insurance, your spouse’s potential eligibility for survivor’s benefits, transferred education benefits.
  • Issues with your military retiree pay agent, like DFAS. Pay in Arrears, Survivor Benefit Plan.
  • Bills you owe, credit cards, outstanding loans, when things are due. Companies involved.
  • Contact info for lawyers, financial and insurance advisers, the VA, your military pay agent.
  • Explain Social Security and medical plans with contact information.
  • Property tax, motor vehicle issues at the local, county and state levels.
  • Military ID card office and update requirements.
  • If you worked as a federal civilian, contacts to the civilian personnel office and programs you are enrolled in.
  • Do you have a Thrift Savings Account or another pension?
  • Wills, powers of attorney, medical directives, burial details.

You get the picture. MOAA has publications to help you bring the issues together, develop a game plan and provide a written record of your situation. You can download our publications on-line from http://www.moaa.org/infoexchange/ (must be logged-in to the MOAA as a member to access the pubs) or call our Member Service Center to order at (800) 234-6622.

Key publications include our Survivor’s Checklist, Burial Guide, our Personal Affairs and Estate Planning workbooks, and our ‘Help Your Survivors Now’ handbook.

You can call MOAA for guidance and appropriate contacts. If you associate with a MOAA local chapter, your spouse might even get help with some paperwork. But we don’t provide a source of income for survivors.

If it were you, wouldn’t you prefer to be armed with a plan before the grief of your spouse’s death? With information, you wouldn’t feel so helpless because you would have a handle on the situation.

No excuses.

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New Policy Changes and Mortgage Programs to Help Military Members

Jul 25 2012

Published by under VA Benefits

With so many military families facing mortgage challenges due to Permanent Change of Station (PCS) moves, deployments, underwater mortgages, and perhaps other reasons, mortgage lenders are being creative with developing new programs to help military members and families.

If you have a mortgage owned or guaranteed by Fannie Mae or Freddie Mac, additional assistance may be available soon. The Federal Housing Finance Agency (FHFA) recently announced changes to short sale policies that will make it easier for military homeowners with Fannie Mae and Freddie Mac mortgages to honor their financial commitments when they are issued a PCS order.

To learn more about the details and eligibility requirements refer to the FHFA Short Sale Asst for Mil Homeowner – Fact Sheet  on FHFA website.

CitiMortgage announced the launch of new programs geared toward members of the military – one of those programs being the military Permanent Change of Station (PCS) Transfer Assistance Program.

The program is available for military service borrowers with CitiMortgage-owned first mortgages who have to relocate due to PCS orders. Other programs CitiMortgage has developed to assist active duty and veterans include Citi’s Disabled Veterans Mortgage Relief Program and Veteran’s on Wall Street.

Whether your mortgage is owned by a federal agency or commercial lender, if you are a military member and experiencing financial challenges due to homeownership there may be programs available to assist you. Call your mortgage company or lender to find out more, or visit www.knowyouroptions.com/military.

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Beware Scam Emails That Appear To Be Sent By DFAS Employees

Apr 10 2012

Published by under Taxes,VA Benefits

Cross-posted from the MOAA Message Center blog

ALERT FROM DFAS:

There are emails being sent to individuals, including military members, military retirees, and civilian employees, which appear to be sent by a DFAS employee. Although the email appears to come from a DFAS employee and displays a dot mil address it is actually from a non-government email account. This is an example of what’s called “spoofing.”

The emails indicate that individuals who are receiving disability compensation from the Department of Veterans Affairs (VA) may be able to obtain additional funds from the Internal Revenue Service (IRS). These emails are not issued by DFAS and will likely result in a financial loss if you comply with the suggestions in the email. Bottom line – do not send your personal information or copies of your tax returns and 1099s to the individual listed in the email.

The email indicates that individuals receiving VA disability compensation can receive additional funds from the IRS. The email states that such funds can be obtained by sending copies of your VA award letter, your income tax returns, your 1099-Rs, your RAS statements, and a copy of your DD 214, to a so-called retired Colonel at an address in Florida. Do NOT follow the suggestions in the email because you will be providing a significant amount of your personal information to a complete stranger, which could result in a financial loss to you.

The 1099-Rs that are issued by DFAS reflect only the taxable portion of a member’s retired pay. DFAS is not aware of any legal basis for the alleged additional funds that the IRS would supposedly pay over. By ignoring the email, you will avoid frustration, the release of personal information to a stranger, and the possibility of financial loss. If you have any questions or concerns about these or any other tax issues, you should contact a known, reputable tax consultant, tax attorney, or legal assistance officer for advice and assistance. Read our agency email policy that has been developed to protect customer privacy.

++++++++copy of text of scam email+++++++++++++

Sent: Thu, March 17, 2011 7:04:17 PM
Subject: FW: Income Tax

Sandra,

here you go!

I been informed that you can receive additional funds from IRS for SM who retired with 20 years of AFS, information required to receive this entitlement is as follows:

Copy of your VA award letter (note: if your VA rating has been increase within the last three years, you’ll need to send all
ratings).
Copies of your 1040’s for tax years: 08, 09 and 10
Any copy of your 1009R for year 08, 09 and 10
Copies of your RAS statements (Retired pay statements) for year 08, 09 and 10
Copy of your DD Form 214

This information should be mailed by Priority Mail to:
>
Willie Brooks
726 Mayflower Ave.
Ft. Walton Beach, FL 32547-3175
850-862-1673.

Mr. Brooks is a retired AF COL who worked for IRS and charges you 10% of what you receive. I have known of several within the AW2 program who has received from $8.000.00 to $19,000.00. See additional information concerning this matter.

Pass this on to any of your friends who has a VA rating and 20 or more years of AFS!

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Does the Strickland Decision Apply to You? How?

Apr 05 2012

Mention VA retroactive awards for disability compensation and the Strickland decision will make its way into the conversation. The Strickland court decision provides tax-free status to past taxable military retired pay due to the award of retroactive VA disability compensation.

We get numerous calls on this issue, and based on my discussions, there are some misunderstandings we need to clear up.  The most common is that the Strickland decision will convert taxable retired pay…amounts above and beyond the tax-free status provided by VA compensation and Combat-Related Special Compensation (CRSC)…to tax-free status.

First, let me start the discussion about members who do not qualify for concurrent receipt. You fall in two camps: 1) retirees with at least 20 years of service, are VA rated at 40% or less and whose disabilities are not combat-related, or, 2) retirees less than 20 years, with any VA rating but your disabilities are not combat-related. You represent two-thirds of the retiree/VA rated population. Bad news is you don’t qualify for concurrent receipt; good news is the Strickland decision probably does you the most good.

By the way, your group is a priority for MOAA as we fight for your concurrent receipt benefits up on the Hill.

We all know that military retired pay is taxable income and VA disability compensation is tax-free. When you qualify for VA disability compensation, you have to agree to waive your retired pay by the same amount you receive in VA compensation; aka the VA Waiver. With the VA Waiver, you trade away your taxable retired pay to receive tax-free VA compensation. This is the foundation of whether you qualify to file amended tax returns to receive a tax refund.

Consider your retired pay situation had your retired pay been docked by the VA Waiver during the VA retro award period. The VA Waiver amount would have docked your taxable pay and you wouldn’t have paid taxes on the amount of income that was docked. You can file an amended tax return for those years to seek a refund for the taxes you paid on the income you wouldn’t have received.

You have to determine what the VA Waiver amount would have been in those years by backing-up the Cost Of Living Adjustments (COLAs) and/or VA rating changes.

Next, for those of you who are eligible for concurrent receipt in the form of Concurrent Retirement and Disability Pay (CRDP) or CRSC, the retroactive tax-free status of retired pay is a little more complex.

Retirees eligible for concurrent receipt are: 1) retirees with 20 or more years of service, VA rating of 50% or greater, or, 2) retirees regardless of years of service and regardless of your VA rating whose disabilities are combat-related.

For you, your past retired pay, after the application of the VA retro award of disability compensation, may or may not have been impacted by a VA Waiver. As discussed above, this is all about the amount of tax you paid on income you wouldn’t have paid if the VA Waiver had applied in the past.

CRDP restores your retired pay by getting rid of the VA Waiver. In restoring your retired pay, the restored portion of pay is taxable; like regular retired pay since CRDP is regular retired pay. CRDP is being phased-in over the years. By 2014, there won’t be a VA Waiver for you CRDP eligibles**. During the phase-in, your VA Waiver amount is getting smaller each year. To determine what your tax refund would be for past years, you have to know what your actual VA Waiver amount was after the application of CRDP in those past years. In other words, you can’t claim a refund for the full amount of your VA compensation because your past pay wasn’t docked for the full amount of the VA compensation due to CRDP.

CRSC impacts retirees in a completely different way than the CRDP crowd. CRSC reimburses you for all or some of the amount of your VA Waiver. All CRSC recipients have a VA Waiver in their retired pay for the full amount of their VA compensation. Because the CRSC rating and payment is based only on the combat-related nature of your disabilities and not total disabilities as is a VA rating, it is possible that your CRSC amount is less than your VA compensation.

Because CRSC is tax-free and the amount will not be more than the VA Waiver amount, the amount of CRSC is not relevant to the amended tax return affected by the retro payment of VA compensation. CRSC payees will use the VA Waiver amount to determine their tax refund status over the retro period. It is the VA Waiver amount that docks the retired pay thereby making the past retired pay income waived by the VA Waiver amount eligible for tax-free status. Your situation is similar to the folks above who aren’t qualified for concurrent receipt.

Now that you know what you are looking for in past pays, I’ll provide a few details on how to file amended tax returns.

To change past taxable retired pay into tax-free pay, you have to file a separate amended tax return (IRS Form 1040X) for each tax filing year in involved. You are filing to get a tax refund for the income you paid taxes on that should have been tax-free had the VA Waiver amount been applied during the retro period.

Some details about how to apply for the tax refund were discussed in a recent article on this blog by Curt Sheldon, one of our guest authors. See Curt’s article for his practical insights at http://moaablogs.org/financial/2012/02/va-disability-benefits-retirement-pay-and-your-taxes/.

The tax code limits the time period to file amended tax returns due to the award of retroactive VA compensation to 4 years from the time of filing the taxes being amended. So a tax filing from 2008 can be amended in 2012. See IRS Publication 525 page 17 for more details (http://www.irs.gov/pub/irs-pdf/p525.pdf).

As Curt states in his article, the burden is on you to provide the background documents to make your case when you file the amended returns. Be sure to put yourself in the shoes of the IRS official reviewing your case. Assume you know nothing about VA disability compensation, military retired pay, or retroactive VA awards. Now what paperwork would you need to convince you the amended tax return is spot on?

Best wishes. When all else fails, consult an expert tax specialist.

** Technically there could be a VA Waiver amount if your retirement pay multiplier used a greater Service disability rating rather than your years of service retired pay multiplier.

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VA Disability Benefits, Retirement Pay and Your Taxes

Feb 07 2012

A lot of the readers of this blog are military members or retired military members.  For those who have or will retire from the military there is a potential tax issue you will need to resolve.  This issue comes from the fact that VA Disability Benefits are often awarded retroactively to a prior date.  To my experience, 99.99% of those us who do receive VA Disability Benefits, will receive them retroactively.  And if that is the case, that means your taxes are/will be messed up.  Here is what to do about your situation.

First the good news.  You have the right to reduce your military retirement income by the amount that your pay should have been reduced if your VA Disability Benefits would have started on time.  This right was established by the courts in the Strickland decision (Strickland v Commissioner, 4th Cir. 1976) and is codified in Revenue Rule 78-161.  That is about the end of the good news.

Now, the bad news.  You are going to get little to no “automatic” help to do this.  You won’t receive and updated 1099-R.  You might get a note from the VA saying that you have rights under the Strickland Decision.  You won’t get a notice from the IRS letting you know you overstated your income in a prior year due to the VA offset not being taken.  So, you are going to have to do this yourself or bring in a pro from Dover.

What needs to be done?

If you were awarded retroactive VA benefits in 2011 you will need to adjust the amount on your 1099-R by the reduction that should have occurred and use the adjusted amount on your tax return.  If you are like me, you’ll need to do two separate calculations, as I had to prove my sons were in college to get an increase in the Disability payment amount.  So I had a period where the offset was correct, a period where the offset was too little and a period of where there was no offset.  Now, when you file your return you’ll have to decide whether you want to e-file or not.  I’m not 100% sure, but I think your return will go through.  But your 1099-R and your tax return won’t agree and this could trigger an audit or at least some questions.  The other option is to file on paper, include a letter explaining that you reduced your 1099-R income IAW Rev Rul 78-161 and also include a copy of the letter from the VA establishing your retroactive benefits (including your 214 might not hurt either).  Easy, right?

If your retroactive benefits span two years (for example you retired in 2010 and didn’t get a determination until 2011) you’ll have to decide if it is worth your time to try to get the refund that is probably due.  If you are rated more than 50% disabled, the tax benefit may be small and you might want to just let it go.  If you are rated less than 50% disabled it may be worth your time.  What you will do in this case is file an IRS Form 1040X (amended tax return) changing your retirement income to reflect the offset that should have been taken.  Then include all the documentation mentioned above.  Even easier…

So the bottom line is: when you get retroactive VA Disability Benefits, you have the right to retroactively reduce your income.  But you’re going to have to do it yourself or hire someone to do it for you.

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