Veteran Tax Benefits: Maximizing Savings for Those Who Serve

For Veterans who have served and sacrificed for the country, the U.S. government offers a range of tax benefits aimed at providing financial relief and assistance, from exclusions on disability payments to education assistance and property tax reductions. Below are examples of key tax benefits, eligibility criteria, and strategic tips on how veterans can maximize their savings this tax season.

The Department of Veterans Affairs (VA) provides disability compensation to veterans who suffer from a service-connected disability, such as injuries, illnesses, mental health conditions, and presumptive conditions caused or made worse by active-duty service. Payments are tax-exempt, meaning they are not included in a veteran’s gross income and do not need to be reported on federal tax returns.

These benefits are often reported to the VA directly, however, veterans should check their records to ensure they don’t mistakenly include these benefits on their tax returns.

While military retirement pay is generally subject to federal income tax, some veterans may be eligible to receive military retirement pay and VA disability compensation, depending on the rating of the disability, which is calculated using the VA Disability Pay Chart. This dual benefit provides a significant tax advantage by allowing veterans to effectively reduce their taxable retirement income.

The VA Pension Program provides tax-free supplemental income to wartime veterans who have a yearly family income that is less than the amount set by congress. Since pension benefits are tax-free, veterans receiving these payments can exclude them from their taxable income as well. Along with a completed pension program application, other requirements include:

• Proof of income and net worth information
• Private medical treatment records and locations of federal records such as a VA medical center
• Additional information for special circumstances that are related to pension for children of veterans and survivors

Many veterans qualify for property tax exemptions, which vary based on location as well as VA disability ratings and requirements. Some states may offer partial exemptions to veterans with lower disability ratings, and to those who are Purple Heart recipients.

GI Bill benefits can help cover education expenses for active-duty service members and veterans, including testing costs, tuition and fees, books, and housing. Some active-duty service members or Selected Reserve members may even be able to transfer their GI Bill benefits to their spouse or child depending on eligibility.

Veterans with a low to moderate income who have earned income (such as wages or self-employment income) may qualify for the Earned Income Tax Credit (EITC). This credit is refundable, which means eligible veterans may receive a refund even if they owe no taxes. Eligibility depends on income, filing status, and number of qualifying dependents. Veterans receiving non-taxable combat pay can choose to include it in their earned income to potentially increase their credit.

• Use Free Filing Programs: Many veterans qualify for free tax preparation services through the IRS Free File program or through services provided by the VA and other veteran-focused organizations.
• Seek Assistance: Veterans can get personalized tax assistance from organizations like Veterans of Foreign Wars (VFW) and Disabled American Veterans (DAV) for help navigating complex tax benefits.
• Stay Informed: Tax benefits can vary annually, so veterans should regularly check with the IRS and their state’s Department of Veterans Affairs for any updates that may affect their eligibility.

By understanding these benefits and planning tax strategies carefully, veterans can maximize their savings, potentially reduce their tax burden, and secure a stronger financial future. From to pension benefits and disability payment exclusions to property tax exemptions, these benefits can make a meaningful difference during tax season.

SOURCES:

• What To Expect After You Get A Disability Rating | Veterans Affairs (va.gov)
• Veterans tax information and services | Internal Revenue Service (irs.gov)
• Education and Training Home (va.gov)
• Family Member Pensions | ChooseVA
• Housing Assistance | ChooseVA
• Transfer Your Post-9/11 GI Bill Benefits | Veterans Affairs (va.gov)