Veterans often need to understand the details of Veterans Affairs (VA) benefits when navigating the financial landscape. These benefits provide crucial support by offering financial assistance in healthcare, education, housing, and disability compensation. Whether you are a former service member from the Army, Navy, Air Force, Marine Corps, Coast Guard, National Guard, or Reserve, VA benefits are there to help you transition back into civilian life.
One common question is whether these benefits are subject to taxation, just like other forms of income. Understanding how VA benefits interact with the tax system is essential for veterans and their families to effectively manage their finances.
Are VA Benefits Taxable?
The answer to this question is more complex. Certain VA benefits from the United States Department of Veteran Affairs are taxable, while others are not.
Below, you can learn more about each of them.
Military Retirement Pay
Veterans receive military retirement pay based on their age or length of service in the armed forces. This income is taxable, so veterans must include it as a pension when filing annual income tax returns. Their income is also subject to federal or state income tax, but some states may exempt retirement pay from being taxed.
If service members have a Survivor Benefit Plan (SBP) annuity and use their military retirement pay for the SBP, that part of their retirement pay is not considered taxable.
VA Disability Benefits
VA disability benefits are not taxable. This includes the following:
- Disability Compensation: A monthly tax-free benefit given to veterans who have disabilities due to illnesses or injuries incurred in or aggravated during military service
- Dependency and Indemnity Compensation (DIC): Tax-free benefits for survivors of military members who died on active duty or from a service-connected disability
- Special Monthly Compensation: A higher tax-free benefit for veterans with very severe disabilities or who face particular circumstances such as the need for aid and attendance (A&A)
Military personnel with a specific disability, such as loss of use of a hand or leg, are also eligible.
Additionally, the disabled benefits below are also non-taxable:
- Pension payments
- Adaptive housing grants, such as for wheelchair ramps, lifts, or other modifications
- Automobile grants for purchasing a vehicle that meets their disability needs
- Adaptive equipment grants for buying items such as a special computer or other equipment
- Dependent-care assistance program benefits
If the VA decides to raise your disability rating, you may be eligible for a federal income tax refund in the tax year where the increase was granted. Moreover, if you’re given Combat-Related Special Compensation (CRSC) benefits after being awarded the Concurrent Retirement and Disability Pay (CRDP), you may claim a tax refund in the year the CRSC was approved.
GI Bill Education Benefits
Veterans and their families who are eligible for the GI Bill education benefits receive a monthly allowance that is also a tax exemption. This includes active duty, reserve members, and veterans under the Post-9/11 GI Bill program.
The GI Bill pays for tuition, fees, books, supplies, a monthly housing allowance, and an annual book stipend. This education benefit applies to undergraduate, graduate, and vocational programs.
Do I Have To Pay Taxes on SSDI?
Social Security Disability Insurance (SSDI) is a federal insurance program that provides income to individuals who have become disabled and cannot work due to their condition. Social Security disability benefits are not taxable, so you do not have to include them in your annual income tax returns. However, you may need to pay social security tax on additional income. For example, any income over $25,000 will be taxed for single filers, and the threshold for married couples filing jointly is $32,000.
Note that there are states that do not tax social security disability benefits. However, you should check with your state tax authorities to ensure these benefits are not taxable in your area.
Do You Get a form 1099 for Benefits?
1099 is a form used to report certain non-employment income payments to the IRS, and VA benefits are not considered non-employment income.
However, if you have an Survivor Benefit Plan (SBP) annuity and use your military retirement pay for the SBP, these payments will be reported on Form 1099-R.
Veterans often receive Form 1099-R from the Defense Finance and Accounting Services (DFAS), which usually reflects the correct taxable portion of VA compensation received.
Do Veterans Pay Property Tax?
It’s a common question veterans and their families ask. The answer to this question depends on your disability rating, age, and the state you live in.
Generally speaking, veterans with a disability rating of 50% or higher or who are 65 or older may be eligible for a partial or complete exemption from property tax for their primary residence.
The specifics of this exemption vary depending on the state, so it’s best to check with your local taxation office to learn more about specific details regarding property tax exemptions for veterans in your area.
Do Veterans Pay Income Tax?
Military retirement pay and other income are taxable, so veterans who receive this pay must report it on their federal tax returns. However, military disability retirement pay and veterans benefits tax may be partially or fully exempted from income tax, depending on the state. Additionally, most states have no pension tax, so there’s no need to pay income tax on these benefits.
Do Military Spouses Pay Taxes on Their VA Benefits?
Military spouses may be eligible for certain VA benefits, such as survivor annuities and dependent allowances. These benefits are exempt from federal income tax, so military spouses do not need to pay taxes on these funds. Additionally, military spouses may be eligible for a partial or complete exemption from state income tax on their VA benefits, depending on the state.
Is VA Disability Going Up in 2024?
Yes. In 2024, the Department of Veterans Affairs (VA) raised disability payment amounts in line with the Social Security Administration’s annual cost-of-living adjustment. This adjustment, set at 3.2%, marks a substantial increase from the 2023 rates. Disabled veterans and military retirees will benefit from this raise, reflecting the government’s continued commitment to supporting those who have served. After two years of notable surges in cost-of-living adjustments, this 3.2% increase in monthly compensation benefits demonstrates the VA’s dedication to enhancing the financial well-being of our veterans.
How Long Will I Receive VA Benefits?
The length of time you will receive VA benefits depends on the type of benefit you are receiving. For example, veterans eligible for disability compensation, disability pension, and healthcare can typically receive these benefits indefinitely. Other types of VA benefits may have specific time limits, such as educational assistance or housing loan guarantees.
How Can Trajector Help Me?
Trajector Disability provides veterans with a wide range of services and resources to help ease the transition from military to civilian life. We can help you understand VA Benefits and Taxes, and help you navigate the complexities of applying for and receiving benefits. Contact us today or browse our website for more information and advice on VA benefits!
Related FAQs
Do I have to pay taxes on SSDI?
You may have to pay taxes on Social Security Disability Insurance (SSDI) if your total income, including SSDI and other sources, exceeds a certain threshold. In 2024, if you file individually and your income is over $25,000, or over $32,000 for joint filers.
Are VA disability benefits taxable?
No, VA disability benefits are not taxable. These payments are considered tax-exempt and are not included in your gross income, so you don't need to report them on your tax return.
Can I get a tax refund if my only income is Social Security disability?
Yes, you may still qualify for a tax refund if your only income is Social Security disability. If your income is low enough and you qualify for certain tax credits, like the Earned Income Tax Credit (EITC), you may receive a refund, even if you didn't owe taxes.
