Combat-Injured Veterans Tax Fairness Act of 2016

This bill directs the Department of Defense (DOD) to identify:

• certain severance payments to veterans with combat-related injuries paid after January 17, 1991, from which DOD withheld amounts for tax purposes, and
• the individuals to whom such severance payments were made.

DOD shall provide each such veteran with:

• notice of the amount of improperly withheld severance payments, and
• instructions for filing amended tax returns to recover such amount.

The period for filing a related claim with the Internal Revenue Service for a credit or refund is extended beyond the three-year limitation to the date that is one year after DOD provides the veteran with the information required by this Act.

DOD shall ensure that amounts are not withheld for tax purposes from DOD severance payments to individuals when such payments are not considered gross income.