From The Mailbag: Disability Benefit & Taxes

A recent email highlights some of the confusion about the taxability of certain post-military benefits.  While military retirement pay is always taxable, military disability benefits provided by the Department of Veterans Affairs (VA) are always non-taxable.

Dear Kate,

I recently completed a claim with the VA and was classified as 100% disabled.  I was sent back pay to my checking account but I didn’t receive a 1099 form that tells of my payment so that I can file my taxes.  I have been trying for months to get a 1099R so that I can file my taxes, with no success. Can you help me please?

Mr. Jones

While military benefits and taxes may be a little bit confusing, this question is an easy one!

Dear Mr. Jones,

Disability benefits provided by the VA are always non-taxable income.  You will not receive a 1099 for this income, and you do not need to report it on your income tax return.  You can find more information about this at the IRS’s Information for Veterans With Disabilities webpage.

I hope that helps!

Kate

The non-taxability of disability benefits is a big deal, especially for those veterans who have other income that would push them into a higher tax bracket.  It is also one of the reasons why, dollar for dollar, disability benefits are preferred to military retirement pay.

I’m glad this reader was able to get his VA disability claim through the sometimes-challenging system and get started on the next chapter of his life!

About the Author

Kate Horrell
Kate Horrell is a military financial coach, mom of four teens, and Navy spouse. She has a background in taxes and mortgage banking, and a trove of experience helping other military families with their money. Follow her on twitter @realKateHorrell.
  • Miller

    If you get a lump sum severence pay due to medical discharge, do you pay taxes on it? I have heard that if you are getting disability pay from the VA you do not pay taxes on what the lump sum, because the VA doens’t pay the full disability rate until they recoup the taxes. And that you have to send various forms to the IRS to keep from getting audited and losing money. Do have any information on this process?