Coast Guard Combat Vets Get Tax Fairness: One-Year Deadline to Correct Severance Pay Withholding

This bill, officially titled the Coast Guard Combat-Injured Tax Fairness Act, is all about fixing a paperwork problem that has cost some veterans money. Specifically, it amends the 2016 Combat-Injured Veterans Tax Fairness Act to make sure that Coast Guard members who received combat-related injuries get the same tax break on their military severance pay as members of the Army, Navy, Air Force, and Marines. It’s a straightforward equity fix.

The Combat Pay Tax Fix

When service members are medically separated from the military, they sometimes receive a severance payment. For those injured in combat, the 2016 Act was supposed to ensure that this pay wasn't taxed, and if it was, the taxes were supposed to be returned. However, the Coast Guard, which operates under the Department of Homeland Security (DHS) in peacetime, didn't always get the same treatment as the other branches under the Department of Defense (DoD).

This new bill closes that gap. It updates the existing law to consistently name the Secretary of Defense and the Secretary of Homeland Security as the people responsible for making sure this tax fairness rule is applied. This is important because it clarifies who has to cut the checks to correct the improper withholding. For a veteran who received a $50,000 severance payment that was taxed at a 22% rate, this correction means getting over $11,000 back—money that can be used for medical bills, housing, or starting a new career.

Who’s Responsible and When

The legislation sets clear deadlines for the Secretaries involved. The Secretary of Homeland Security must start carrying out the requirements for making sure taxes aren't improperly withheld (Section 4 of the original law) immediately upon enactment. This means the process of identifying and correcting the issue should begin right away.

For the larger tasks of determining eligibility and actually issuing the corrected payments (Sections 3(a) and 5), the Secretaries of Homeland Security and Transportation (which oversees the Coast Guard when not under the Navy) have a year from the date the bill becomes law to get everything sorted out. For the veterans affected, this means a concrete timeline for when they can expect their money back, though the administrative lift to track down all those records and calculate the refunds is significant.

Ultimately, this bill is a technical correction with a major financial impact for a small, deserving group. It ensures that the Coast Guard, whether operating under the DoD or DHS, is treated equally under federal tax law when it comes to compensating those who were injured in the line of duty.