Which Veterans Benefits Are Tax-Free?
Many VA payments aren’t taxable income under IRS Publication 525, so you don’t owe federal income tax on them. They’re one of several kinds of income that aren’t taxable.
| Payment | Federal tax treatment |
|---|---|
| VA disability compensation and pension payments to you or your family | Tax-free |
| VA education, training and subsistence allowances | Tax-free |
| Grants for homes designed for wheelchair living | Tax-free |
| Motor-vehicle grants for veterans who lost their sight or the use of their limbs | Tax-free |
| One-time lump-sum disability severance payment for combat-related injuries | Tax-free |
| Dependency and Indemnity Compensation (DIC) for eligible survivors | Tax-free |
| Combat-related special compensation (CRSC) | May be tax-free |
| Military retirement pay based on age or length of service | Taxable |
If you’re a surviving family member, the VA confirms DIC is tax-free for eligible survivors. Many states offer their own veteran breaks, such as property tax exemptions, so check with your state’s tax agency.
How Military Retirement Pay Is Taxed
Military retirement pay is the main exception. If it’s based on your age or length of service, it’s taxable under federal income rules. CRSC may be excluded, but other retirement pay may still be taxable. Many states exempt military retirement pay; check your state’s rules.
How to Get a Refund on Taxes You Already Paid
If you paid tax on money that should have been tax-free, you may be able to get it back. You do this with an amended return, which is a corrected version of a return you already filed. If you paid tax on a combat-related lump-sum severance payment, you can file one to claim a refund. The IRS veterans tax page also lists these refund routes.
Retroactive VA Disability Determination
Sometimes a VA disability determination applies retroactively to earlier years. Retirement pay you received for that period is then excluded from income, up to the VA benefits you would have been entitled to. You file Form 1040-X, the amended return form, for each prior year. A statute of limitations is the deadline for claiming a refund. Here, it’s extended one year from the date of the VA’s determination, but not for tax years beginning more than five years prior to the determination.
Increased VA Disability Percentage
If the VA raises your disability percentage, you may be eligible for a refund through an amended return.
CRSC for Concurrent Retirement and Disability
If you’re granted CRSC for concurrent retirement and disability, you may also be eligible for a refund through an amended return.
Free Tax Filing Help for Veterans
You can file your federal return for free through programs listed on the IRS veterans services page.
- IRS Free File is available if your adjusted gross income (AGI) is $89,000 or less. AGI is your total income minus certain adjustments.
- Volunteer Income Tax Assistance (VITA) helps if you earn $69,000 or less or have a disability. It also helps if you need language support.
- MilTax (Department of Defense, via Military OneSource) lets you file federal and up to five state returns free up to 365 days after separation or retirement.
How Tax-Free VA Benefits Affect the EITC
The Earned Income Tax Credit (EITC) requires earned income. The IRS defines earned income as taxable wages and self-employment income. Based on that definition, tax-free VA benefits don’t count as earned income for the purpose of EITC.
Sources
- IRS, Publication 525 (2025), Taxable and Nontaxable Income
- IRS, Veterans tax information and services
- IRS, Earned income and Earned Income Tax Credit (EITC) tables
- U.S. Department of Veterans Affairs, About VA D.I.C. for spouses, dependents, and parents
