When veterans get a back pay award from the military, their Federal tax liability may be more than that which they would have paid if they got their military pay on the regular payment schedule. This can occur because they are pushed into a higher marginal rate for the year in which they receive the back pay award. Are veterans entitled to reimbursement for the increased Federal tax? The Court of Federal Claims says they are.
Attia v United States involved a veteran who established that he was underpaid for his language acquisition skills and other work. The Defense Finance Accounting Office (DFAS) issued him a back pay award but refused to reimburse him for the increased state and Federal tax burden he had as a result of receiving the lump sum. This was a case of first impression arising under the Military Pay Act, but the Federal Circuit Court of Appeals had allowed such reimbursement under other laws. Accordingly, the Court of Federal Claims allowed him reimbursement for the increased Federal tax. It did not, however, allow him to be reimbursed for any additional state taxes he may have paid. The Court found that those damages were too remote and DFAS would not have the information necessary to compute those amounts.
The Attia decision was issued on March 27, 2025.
Attia v United States involved a veteran who established that he was underpaid for his language acquisition skills and other work. The Defense Finance Accounting Office (DFAS) issued him a back pay award but refused to reimburse him for the increased state and Federal tax burden he had as a result of receiving the lump sum. This was a case of first impression arising under the Military Pay Act, but the Federal Circuit Court of Appeals had allowed such reimbursement under other laws. Accordingly, the Court of Federal Claims allowed him reimbursement for the increased Federal tax. It did not, however, allow him to be reimbursed for any additional state taxes he may have paid. The Court found that those damages were too remote and DFAS would not have the information necessary to compute those amounts.
The Attia decision was issued on March 27, 2025.