Pay in Vets' Work Program Ruled Tax-Free Ruling on Compensated Work Therapy Retroactive Three Years

Week of Jan 07, 2008

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America's Veterans


WASHINGTON - Payments provided to veterans under two specific programs of the Department of Veterans Affairs (VA) -- the Compensated Work Therapy (CWT) and Incentive Therapy (IT) programs -- are no longer taxable, according to the Internal Revenue Service. Veterans who paid tax on these benefits in the past three years can claim refunds.

Recipients of CWT and IT payments no longer receive a Form 1099(Miscellaneous Income) from VA. Veterans who paid tax on these benefits in tax years 2004, 2005 or 2006 can claim a refund by filing an amended tax return using IRS Form 1040X. Nearly 19,000 veterans received CWT benefits last year, while 8,500 received IT benefits.

The IRS agreed with a U.S. Tax Court decision earlier in 2007 that CWT payments are tax-free veterans benefits. In so doing, the agency reversed a 1965 ruling that these payments were taxable and required VA to report payments as taxable income.

The CWT and IT programs provide assistance to veterans unable to work and support themselves. Under the CWT program, VA contracts with private industry and the public sector for work by veterans, who learn new job skills, strengthen successful work habits and regain a sense of self-esteem and self-worth. Veterans are compensated by VA for their work and, in turn, improve their economic and social well-being.

Under the IT program, seriously disabled veterans receive payments for providing services at about 70 VA medical centers.