If you are a veteran or you know a veteran who is either partly or completely disabled as a result of their military service, there has been a change in the law recently. It is now possible to get a refund on some things that you may have paid taxes on in the past, such as compensated programs and work therapy type activities. If you are a Veteran who participates in a program such as this, and you have or know someone who has paid taxes on this during the last three calendar years, due to a change in the law you can claim a refund.
In the past Veterans who were disabled under the VA rules and enrolled in a compensated work program or therapy for work program that you received compensation for were forced to pay taxes on these compensation funds. Now, those taxes that you paid have been reversed. Due to a decision in 2007 in United States Tax Court, the situation is now that allows anyone that paid taxes on compensated work benefits for the calendar years 2006, 2005, and 2004 to be eligible for a refund. The Court held that certain compensated benefits such as Compensated Work Therapy were being given to aid and assist veterans for their service and should not be taxed. This was a total reversal of a ruling from back in 1965, when the IRS first started to tax the CWT benefits.
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Now, those veterans who receive Compensated Work therapy funds are able to do so without having any tax imposed on them. These are funds that give aid and help to veterans to provide job re training and job skills, and provide for special needs situations to support Veterans in getting back into the work force. This means that from now on you will not pay any tax on these benefits and that you will receive the full benefit tax free.
You are allowed to apply for and receive a refund for up to the last three years. You are not required to, but you can apply for these back benefits from the year 2004 forward. The taxes you paid in years before 2004 are not refundable. This is a benefit refund that you have to file for, you will not receive it unless you apply to the IRS.