Ohio exempts state income tax on veterans’ disability severance pay

Written on Mar 09, 2020

Gov. Mike DeWine has signed into law a bill that exempts veterans who receive disability severance pay from being taxed on that income.

House Bill 18, the Ohio Veterans Exemption Payment Act, also gives a one-time, refundable tax credit to veterans who paid state income tax on their disability severance payments.

The legislation mirrors “The Combat-Injured Veterans Tax Fairness Act,” which Congress passed into law in 2016. The federal measure aimed to remedy the incorrect taxation of disability severance pay that should have been tax-exempt.

The bipartisan Ohio bill could reduce income tax receipts by between $1 million and $1.5 million during the 2020-21 biennium budget, according to a Legislative Service Commission (LSC) analysis. However, the precise amount depends on how many veterans apply for a refund.

Veterans who paid state income tax on their disability severance payments are eligible to apply for a one-time tax credit that is retroactive to as far back as Jan. 17, 1991.

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