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How Are Veteran's Disability Income Benefits Taxed?

VA Health Benefits
August 26, 2024•2 min read

Veteran's Disability income payments are generally not taxed at the federal level in the United States. This includes disability compensation and pension payments received by veterans from the Department of Veterans Affairs (VA).

Here are key points to understand about the tax treatment of these payments:

  1. Disability Compensation: Payments made by the VA to veterans for disabilities related to their military service are exempt from federal income tax. This includes monthly disability compensation, special monthly compensation (SMC), and dependency and indemnity compensation (DIC) for surviving spouses and dependents.

  2. VA Pension: The VA pension received by low-income wartime veterans is also not taxable. This includes benefits like the Improved Disability Pension, Section 306 Pension, and Old-Law Pension.

  3. Special Payments: Certain special payments received by disabled veterans, such as grants for homes designed for wheelchair living, grants for motor vehicles for veterans who lost their sight or the use of their limbs, and benefits under the Veterans' Employment and Training Service, are also tax-exempt.

  4. Retirement Pay: Military retirement pay based on age or length of service is taxable. However, if a portion of the retirement pay is based on a service-connected disability, that portion may be excluded from taxable income.

  5. Concurrent Receipt: Veterans who are eligible for both military retirement pay and VA disability compensation may receive both payments, but the VA compensation is still non-taxable. Some veterans may receive part of their retirement pay tax-free if they are eligible for Combat-Related Special Compensation (CRSC) or Concurrent Retirement and Disability Pay (CRDP).

  6. Retroactive Payments: Retroactive disability compensation payments that a veteran receives as a lump sum are also not subject to federal income tax, regardless of the year they are paid.

  7. Social Security Benefits: VA disability benefits are not counted as income for the purposes of determining eligibility for Social Security disability benefits or the amount of Social Security benefits a veteran receives.

It's always a good idea for veterans to consult with a tax professional or refer to IRS Publication 907, "Tax Highlights for Persons with Disabilities," for specific guidance and updates on tax laws.

Note: This information is for educational purposes only. Please refer to VA.gov for details. Information may change without notice. The Brann Group is not affiliated with the Veterans Administration or Medicare.

Mark has worked in various financial industry sectors for almost four decades. He has worked with companies as diverse as Edward Jones, Omaha Investor Services, and life and health insurance companies too numerous to list. Some of Mark’s past and present achievements include: Master’s Degree in Accounting Series 7 & 63 (Securities Broker) 30+ Years Insurance Broker Enrolled Agent – I.R.S. (Individual Tax Consultant)

Mark Brann

Mark has worked in various financial industry sectors for almost four decades. He has worked with companies as diverse as Edward Jones, Omaha Investor Services, and life and health insurance companies too numerous to list. Some of Mark’s past and present achievements include: Master’s Degree in Accounting Series 7 & 63 (Securities Broker) 30+ Years Insurance Broker Enrolled Agent – I.R.S. (Individual Tax Consultant)

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