Are VA Benefits Taxable?

Retirement Pay, Disability, and UCX Veterans' Benefits May Be Subject to Taxes

A veteran prepares a meal for her family.
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Veterans of the U.S. military can receive a wide variety of retirement and disability tax benefits. But many veterans struggle to sort out the various types of income that they may receive. This is because some types of income are fully taxable, while others are tax-free. The main groups of VA benefits that are taxable include retirement pay, certain disability benefits, and unemployment compensation for ex-service members (UCX). Learn everything you need to know about VA benefits and how they are taxed. 

Key Takeaways

  • Some veterans (VA) benefits and types of income are taxable, while others are not.
  • Retirement pay, certain disability benefits, and unemployment compensation for ex-service members (UCX) are typically taxable.
  • While these three groups are taxable, the majority of VA benefits are exempt from taxation.
  • Veterans can get help with understanding VA income and taxes from Military OneSource and the IRS’ Volunteer Income Tax Assistance (VITA) program.

Types of VA Benefits You Can Receive

There are two main types of VA benefits that people are eligible to receive: cash and discounts. 

Cash benefits are monthly payments from the government for retirement and disabilities incurred during military service. If you’ve been permanently and totally disabled, you can also qualify for Social Security disability benefits. 

Veterans are also privy to discounts on mortgages, income tax preparation, groceries from the commissary, financial coaching, and educational benefits with the GI Bill.

Veterans (VA) Benefits That Are Taxable

Three main groups of VA benefits are taxable: retirement pay, certain disability benefits, and unemployment compensation for ex-service members (UCX).

Military Retirement Pay

Active duty members and those in the reserve who serve 20 or more years are eligible for retirement benefits. There are five retirement plans that veterans may be eligible for:

  1. Final Pay
  2. High-36 (also called High-3)
  3. REDUX
  4. Blended Retirement System (BRS)
  5. Disability

Each retirement plan has its own criteria for receiving benefits, and each has different benefits. Generally, the IRS says that veteran retirement pay is taxed as a pension, but it will depend on the retirement plan, too.

You’ll enter your pension payments for the tax year on the lines for pension and annuity payments on Form 1040 or Form 1040-SR. You won’t have to pay federal taxes on any part of your pension that you use for a survivor annuity for your spouse or children.

Note

Military retirement pay is not counted as earned income, either, so you won’t pay FICA taxes (Social Security or Medicare taxes).

Twenty states and Washington D.C. either partially or fully tax military retirement pay, causing veterans to pay tax on both the federal and state levels.

Disabled Veteran Benefits

Thanks to the Combat-Injured Veterans Tax Fairness Act of 2016, veterans who receive lump-sum severance payments due to a medical disability must pay taxes on the payment. However, that payment isn’t taxable if you receive it for combat-related injuries or the VA tells you the payment is not taxable. Taxable severance pay will be included on your W-2, and your employer should withhold state and federal taxes for you.

Note

Certain veterans can also receive retroactive refunds for taxes paid on severance payouts for combat-related injuries.

Unemployment Compensation for Ex-Servicemembers (UCX)

Service members who leave the military might have a hard time finding work as they make the transition to civilian life. To help tide veterans over during this period, the military offers unemployment compensation (UCX) that’s administered at the state level. This unemployment income is taxable. You’ll receive a Form 1099-G for this income, and you’ll enter it on Schedule 1 when you do your taxes.  

Nontaxable Veterans Benefits 

The majority of VA benefits are exempt from taxation. Tax-free VA benefits include:

  • Certain disability compensation
  • Disability pension
  • Benefits related to education or vocational training (like the Post-9/11 GI Bill)
  • Housing grants for homes designed for wheelchair living (Specially Adapted Housing [SAH] grants may qualify)
  • Group-term life insurance
  • The Compensated Work Therapy (CWT) program

Other Possible Tax Benefits

Several states provide additional tax breaks for disabled veterans. For example, the state of California waives property taxes for veterans who are 100% disabled and meet certain income and home-appraisal limits. Other state-related benefits for disabled veterans can be found via the VA’s list of state-level veterans benefits websites.

How Do I Get Tax Help for My VA Benefits?

With the plethora of benefits for veterans at both the federal and state levels, determining which benefits are taxable can be challenging. A qualified tax professional who specializes in military and veteran tax returns can be of great help if you need assistance.

If you want free help, you can use Military OneSource, a wide-ranging website with information about free military tax filing through MilTax and contact information for MilTax consultants. Also, veterans can get free help from the IRS’ Volunteer Income Tax Assistance (VITA) program.

Frequently Asked Questions (FAQs)

How do you apply for VA benefits?

To apply for VA benefits, you'll need to know the type of benefits you're looking to receive. There are different applications for members seeking disability benefits, pension benefits, education and training benefits, and more. You can find all applications and guidance for how to apply for VA benefits on the Veterans Affairs website.

Who is eligible for VA benefits?

Active, discharged, disabled, retired, and other types of service members and their families may be eligible for VA benefits. The minimum active-duty service requirement is 24 months. If you were discharged or released, the VA will also look at the "character of discharge" when determining eligibility.

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Sources
The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
  1. U.S. Department of Veterans Affairs. "VA Benefits for Service Members."

  2. U.S. Military Compensation. "Retired Pay."

  3. U.S. Department of Veterans Affairs. "Disability Compensation."

  4. IRS. "Federal Income Tax Withholding After Leaving the Military," Page 2.

  5. TurboTax. "States That Don't Tax Military Retirement."

  6. IRS. "Publication 4128: Tax Impact of Job Loss," Page 3.

  7. IRS. "Combat-Injured Veterans Tax Fairness Act Claim Information Available."

  8. Department of Labor. "Unemployment Compensation for Ex-Servicemembers (UCX)," Page 2.

  9. Intuit TurboTax. "Guide to Unemployment and Taxes."

  10. California State Board of Equalization. "Disabled Veterans' Exemption."

  11. Legal Information Institute. "§ 3.12a Minimum Active-Duty Service Requirement."

  12. U.S. Department of Veterans Affairs. "Claims for VA Benefits and Character of Discharge."

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