Are VA Disability Benefits Taxable?

In This Edition

• Are VA Disability Benefits Taxable?

• Where Do My Benefits Go if I Die?

• H&P Disability Law Trivia

• One Veterans life-changing battle with VA

This week, we're explaining all the details about taxes and how they impact your VA disability benefits.

Let’s tell you what you need to know!

Are VA Disability Benefits Taxable?

Navigating the complexities of financial benefits can be challenging for veterans and their families, especially when it comes to understanding tax obligations. 

A common question is whether VA disability benefits are considered taxable income. 

The short answer is no—VA disability benefits are not taxed.

VA Disability Benefits: A Tax-Free Advantage

VA disability compensation is issued without federal, state, social security, or Medicare taxes being deducted. 

Consequently, when filing federal tax returns, veterans are not required to report VA disability payments as gross income. 

This tax exemption extends to several other VA benefits, including:

• Grants for home modifications for wheelchair accessibility.

• Grants for specialty vehicles for veterans with significant impairments.

• Benefits under the VA dependent-care assistance program.

These benefits are automatically recognized as tax-free by the IRS, eliminating the need for veterans to file additional tax paperwork for these specific aids.

Increased Disability Ratings and Tax Refunds

If a veteran's disability rating is increased, they may become eligible for a federal tax refund. 

This eligibility also applies to retroactive disability benefits and certain cases of Combat-Related Special Compensation. 

Filing an amended tax return using IRS Form 1040X is necessary to adjust for these changes, requiring pertinent VA and Defense Finance and Accounting Service documentation.

Additional Tax Benefits for Disabled Veterans

Beyond disability payments, the IRS also exempts VA education benefits from taxation. 

Veterans can find more details on these benefits in IRS Publication 970, which outlines tax benefits for education, including tuition, books, and other educational expenses. 

Moreover, disabled veterans may qualify for property tax benefits, which vary by state. 

For instance, Florida offers a property tax deduction for veterans with a disability rating of 10% or more, with full exemptions for those rated 100% disabled.

Tax Resources for Veterans

In 2015, the IRS and VA created a Moratorium of Understanding with a primary focus on providing veterans and their families with free tax preparation services. 

Several other organizations joined the Moratorium of Understanding to offer their tax advice and services to both veterans and low-income individuals and families. 

Examples of these resources include:

• IRS – Information for Veterans: information about tax credits and benefits, free tax preparation, financial education and asset-building opportunities.

• Free Tax Return Preparation: IRS Free File offers free tax software to single and married filers with an income less than $69,000 as of December 31, 2019.

• Tax Counseling for the Elderly (TCE): If you are at least 60 years old, you may qualify for free electronic tax filing through the Tax Counseling for the Elderly (TCE) Program. Program volunteers have received training directly from the IRS. The American Association of Retired Persons (AARP) works with TCE through its own program called AARP Tax-Aide.

• Earned Income Tax Credit (EITC): Low and moderate income veterans may qualify for the Earned Income Tax Credit (EITC) on their federal tax return. You could also qualify to receive the Child Tax Credit. You can learn more about both tax credits and how they help military families by watching this short YouTube video.

• The Office of Service Member Affairs associated with the Bureau of Consumer Financial Protection provides free financial coaching for veterans. You can use this link to find a financial coach in your community trained to work with the unique financial needs of veterans.

• The Affordable Care Act Information for Tax Season: from The Department of Veterans Affairs

Where Do My Benefits Go if I Die?

It’s actually a common question that many veterans wonder about.

Attorneys Matthew Hill and Carol Ponton talk about the answer in a new short YouTube video.

If you have dependents, this is an important one to check out!

H&P Disability Law Trivia

Great job on the quiz question last week! About 1/3rd of our readers got this one right! Here’s a recap:

Here’s this weeks question. We’ll be talking a lot about VA claim appeals.

You may have noticed, if you participate in our polls and trivia, you are able to submit a question or comment in addition to your answer.

Now, you can submit a question for our YouTube Live Stream, Wednesday’s at 1400 hours!

These questions are selected completely at random but if you ask, you could potentially get a direct answer from our team on a following weeks livestream!

And subscribe to our YouTube below to stay informed about new content!

One Veterans life-changing battle with VA

We have another great video this week from Marine Corps veteran Al Haslam who talks about his “life-changing” journey to VA benefits. He also brought a special guest, so be sure to check it out!