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My VSI [voluntary separation incentive] is reported on a W-2…

My VSI [voluntary separation...

My VSI [voluntary separation incentive] is reported on a W-2 - my tax program seems to interpret this as income. Should I treat this W-2 as a 1099R?

Lawyer's Assistant: Are you overseas or stateside?

Statewide

Lawyer's Assistant: Have you talked to anyone in the chain of command about this?

I have been in the "Retired Reserve" status for at least 10 years - no chain of command.

Lawyer's Assistant: Anything else you want the lawyer to know before I connect you?

From what I can tell, VSI is an annuity, not income.

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Answered in 30 minutes by:
3/8/2018
P. Simmons
P. Simmons, Military Lawyer
Category: Military Law
Satisfied Customers: 36,578
Experience: Retired Marine Corps lawyer and Veterans Services Officer (VSO) with 12+ yrs. of experience.
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Hi, My name is***** am an attorney with over 16 years experience. Hopefully I can help you with your legal question.

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Wait...are you referring to VSI from military? So you took VSI to leave before 20 years?

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Thanks

That payment is taxable. It is, essentially, a substitute for military retired pay (which is also taxable). Your annuity payments are considered taxable by the IRS.

This is the part of my job I don't like...when the law is not in favor of my customer. I wish I could tell you that this is not taxable, but I can only provide you information based on the law so that you can act on the best available information to you...I wish I had better news, but can only hope you recognize and understand my predicament and don't shoot the messenger. I'm sorry!

Please let me know if you have more questions. Happy to help if I can.

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Customer reply replied 1 month ago
Agree it is taxable. However what line it is accounted for on the Federal and State tax forms is in question. On the Federal 1040 Form, seems like it should be accounted for on line 16a/b [pensions and annuities] vs line 7[wages, salaries, tips].

Did they not send you a 1099?

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Customer reply replied 1 month ago
Agree it is taxable. However what line it is accounted for on the Federal and State tax forms is in question. On the Federal 1040 Form, seems like it should be accounted for on line 16a/b [pensions and annuities] vs line 7[wages, salaries, tips].No 1099 - it has always been a W-2.

That is odd...so every hear DFAS sends you a W2 and not a 1099?

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Customer reply replied 1 month ago
Agree it is taxable. However what line it is accounted for on the Federal and State tax forms is in question. On the Federal 1040 Form, seems like it should be accounted for on line 16a/b [pensions and annuities] vs line 7[wages, salaries, tips].No 1099 - it has always been a W-2.Correct - since 1992!

I do not believe it is VSI is a "wage"...it is a taxable benefit you earned (like retirement)

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That said, if DFAS is giving you a W2? I would file accordingly...just list on the return the w2 and its amounts

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Customer reply replied 1 month ago
Agree it is taxable. However what line it is accounted for on the Federal and State tax forms is in question. On the Federal 1040 Form, seems like it should be accounted for on line 16a/b [pensions and annuities] vs line 7[wages, salaries, tips].No 1099 - it has always been a W-2.Correct - since 1992!Yes, that's what I have been doing. But since last year we have been living in Missouri and they allow exemptions for Military Pension that should really be included on the Federal 1040 lines 16a/b. Last year Missouri refunded me some state income tax because the VSI was counted as income on the federal return vs military pension. Misssouri believes the VSI is a military pension.

Shoot...sorry...I typed an answer and it vanished...a few mins please...

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I agree that VSI is like a military pension. But I also agree it is not the same (it is an incentive for you to waive off on retirement). This really is a state law issue (how MO will view this income)...I will opt out in the even there may be another expert here that can addresses the MO law aspect.

P. Simmons
P. Simmons, Military Lawyer
Category: Military Law
Satisfied Customers: 36,578
Experience: Retired Marine Corps lawyer and Veterans Services Officer (VSO) with 12+ yrs. of experience.
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Experience: Retired Marine Corps lawyer and Veterans Services Officer (VSO) with 12+ yrs. of experience.

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