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What Income Can Veterans Expect To Pay Federal And State Taxes On?

What Income Can Veterans Expect To Pay Federal and State Taxes On?

Veterans receiving special benefits from the VA and other organizations may not be required to pay taxes on them, depending on a variety of factors. One of the biggest factors to consider is the state the Veteran resides in. Many states follow the same guidelines as the federal government, but it’s best to check your state’s tax laws to be sure.

So, what income can Veterans expect to pay their federal and state taxes on? Here’s what the VA, AARP, and DFAS have to say.

VA Disability Pay

Disability payments from the VA are not taxed by either the federal government or any state government. However, disability payments from Social Security may be taxed by federal and state governments above certain income levels. It’s also worth noting that eligibility for VA disability payments often, but not always, qualifies Veterans for full or partial exemption on state property taxes.

Military Retirement Income

Although the federal government taxes military retirement pay, many states offer full or partial tax discounts. For more about how states tax military retirement income, click here.

Survivor Benefit Plan Premiums

For active duty service members, SBP coverage is free. However, retirees who opt in pay monthly contributions. Generally, the government deducts these premiums (up to 6.5% of a Veteran’s gross retirement pay) from the gross retirement pay on a pre-tax basis. This lowers a Veteran’s federal taxable income. The payments received by the beneficiary after a Veteran’s passing are usually treated the same way as military retirement pay.

VA Education Benefits

Any payments received in a GI Bill program are tax free for Veterans, dependents, or survivors. To learn more about VA education benefits, click here.

Other VA Benefits

There are many other types of VA benefits that the federal government does not tax, including:

  • Combat-related special compensation
  • VA grants to modify a home
  • Interest from VA life insurance policies
  • VA dependent-care assistance
  • VA post-9/11 survivor benefits
  • Income received in the VA Compensated Work Therapy program

We are Veterans Helping Veterans

The Veterans Legal Assistance Program’s goal is to support Veterans and those serving in active-duty, as well as their families. We want to inform you of the issues affecting the Veteran community and connect you with people we trust.

We’ve got your six.

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