Veterans benefits play a crucial role in supporting those who served our country. However, navigating the tax implications of these benefits can be confusing.
Veterans need to know about taxes and the Department of Veterans Affairs (VA).
Taxation of Veterans’ Benefits
- Military Retirement Pay: This is generally taxable income, except for contributions to the Survivor Benefit Plan (SBP). Social Security taxes are not withheld.
- Military Disability Retirement Pay: This is often tax-free if received due to service-related injuries or illness. However, specific conditions apply, such as entitlement before a certain date, combat injuries, or current VA disability compensation.
- Veterans’ Benefits: Most VA benefits are excluded from federal taxes. These include:
- Education/training allowances
- Disability compensation/pension payments
- Grants for accessible housing or vehicles
- Insurance proceeds/dividends
- Dependent-care assistance
- Death gratuity
- Compensated work therapy program payments
Retroactive VA Disability:
If you receive a retroactive disability rating after retiring, you may be able to claim a refund on taxes paid on retirement pay (up to the amount of the disability benefit).
General Tax Filing for Veterans
- Veterans are still obligated to report income that applies to all taxpayers. This ensures accurate IRS records and avoids potential legal issues.
- Resources are available for assistance. Free online resources can help with filing, or you can hire a tax professional for a fee.
Tax Benefits for Veterans:
- Federal:
- Tax-free disability compensation, pensions, and VA home modification grants.
- Military retirement pay is taxable but exempt from Social Security taxes.
- State:
- Many states offer property tax exemptions for honorably discharged veterans and their spouses, often based on disability ratings. These exemptions can save veterans significant money.
Taking Advantage of Benefits:
- File your taxes by the deadline (typically April 18th) to claim any applicable benefits.
- Recent increases in disability ratings or combat-related special compensation may allow for a tax refund for the corresponding year.
- Check your state’s revenue website for specific veteran tax benefits in your area.
By understanding the tax implications of their benefits, veterans can ensure accurate reporting and maximize their financial well-being.
Don’t hesitate to seek help from available resources or qualified professionals if needed.
