Is VA Disability Taxable?
Tax advantages are also available to you as a disabled vet, family member, or survivor. These may include tax refunds after changes in your disability status, property tax exemptions, tax-free housing grants, and free tax preparation services.
Veterans Guide is a trusted source of information, providing those who served with answers and resources to help them receive all the benefits and advantages available.
Do I Have to Report VA Disability as Income on My Tax Return?
Does VA disability count as income? No, disability benefits are not considered income for tax purposes. You do not have to report your disability payments as income on your tax returns. In fact, your VA disability benefits should not be reported as part of your gross income, according to the IRS.
Will Disabled Veterans Get a 1099 for VA Disability?
No, disabled veterans do not get a 1099 for their VA disability payments. If you are a military retiree or annuitant, you will receive a 1099-R. This form reflects only the taxable portion of your income and does not include your disability payments or any other non-taxable payments you received from the military.
Disabled Veterans May Qualify for a Tax Refund
You may qualify for a federal tax refund in either of these situations:
- You received an increase in your VA disability rating.
- You were granted Combat-Related Special Compensation, which provides tax-free payments to retired veterans with combat-related disabilities, after you were awarded Concurrent Retirement and Disability, which allows military retirees to receive both military retired pay and VA compensation.
To get the tax refund, you must file an amended return using Form 1040-X and include documents from the VA and Defense Finance and Accounting Services that explain your current tax treatment.
Are SSDI Payments Taxable?
Many disabled veterans who receive VA disability benefits also receive Social Security Disability Insurance, or SSDI, benefits. Unlike VA disability benefits, SSDI benefits may be taxable in some situations, depending on the amount of your other income. For instance, you may have other sources of income, such as work or investments. If half of your SSDI benefits plus all of your other income exceeds certain income thresholds, then you will owe federal taxes on a portion of your SSDI benefits.
The IRS provides an online tool that will help you find out if your SSDI benefits are taxable. Depending on your income and your filing status, if you are required to pay taxes on your SSDI benefits, you may owe taxes on up to 50 percent of the benefits or up to 85 percent.
Other Tax Benefits for Disabled Veterans
The VA provides other tax-free benefits to qualifying veterans and survivors of service members and veterans who have died:
- Dependency and Indemnity Compensation, or DIC, is a tax-free benefit for the following individuals:
- A surviving spouse, child, or parent of a service member who died in the line of duty, or
- A surviving spouse, child, or parent of a veteran who died from a service-related injury or illness
- Special Monthly Compensation, commonly called “aid and attendance,” is a tax-free benefit for veterans and their spouses and for surviving spouses and parents, which provides a higher rate of compensation when there’s a need for assistance or a specific disability, such as not being able to use a hand.
- VA housing grants: The VA provides tax-free housing grants under four separate programs to veterans with a 100 percent disability rating. Depending on your disability, you may be eligible for grants to buy or build a new home, make significant changes to your current home, or obtain temporary housing while waiting for a permanent home.
- Educational benefits from the VA are also tax-free.
- Property tax exemptions: Many states don’t require disabled veterans to pay property taxes. Often, the exemption is only available for veterans who have a 100% permanent and total VA disability rating, but some states provide exemptions for veterans who have lower levels of disability.
Are VA Disability Benefits Ever Considered Income?
When does VA disability count as income? It’s not counted as income for tax purposes but may be considered income in other specific situations. For example, VA disability benefits are considered income if you apply for Supplemental Security Income, or SSI, benefits. In that case, your VA benefits will count as part of your total income. You won’t be eligible for SSI if your total income exceeds the qualifying threshold.
On the other hand, Social Security Disability Insurance, or SSDI, does not count your VA disability benefits towards your income. It only counts your earned income.
Your disability benefits may be counted as income if you apply for the Earned Income Tax Credit, or EITC. This might either help or hurt you, depending on your total income. For example, up to a certain point, your EITC will be higher if your income is higher. However, the credit starts to get phased out above a certain threshold.
Tax Resources for Veterans
In addition to tax advantages for veterans receiving disability benefits, some tax resources are available for all veterans.
- Free tax return preparation: The IRS has prepared more than 1.3 million free tax returns for veterans. IRS-trained and certified volunteers complete these returns.
- IRS Free File: You can file your tax returns electronically for free if you or your family have an adjusted gross income of $73,000 or less.
- MilTax: Funded by the Department of Defense for service members, eligible family members, and survivors, this program provides free tax software and individual help from military tax experts. To determine if you can use MilTax, you can verify your eligibility on its website.
The Veterans Guide Provides Trusted Information and Resources for Veterans
If you have any questions about your VA benefits or any other concerns as a veteran, Veterans Guide is here to provide answers. We champion veterans’ rights nationwide. We provide comprehensive information to answer your questions about VA benefits, disability, toxic exposure, and SSDI. We can also connect you with legal professionals offering one-on-one assistance to help you receive all the benefits you deserve.
Contact us today by calling 888-982-1009 or filling out the online contact form. We are glad to answer your questions. If you need help with your VA disability benefits, we can provide a free case evaluation.
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