5 Tax Breaks for Veterans
Whether you have served in the military decades ago, or if you’re ready to retire soon, there are specific tax breaks for veterans that can help you and your family save money on your tax bill — and even file your tax returns for free.
- To qualify as a veteran, you must be a former member of the armed forces who has been discharged and must have served on active duty for at least 24 months.
- Most military pensions are considered federal taxable income, but military disability payments are tax-free.
- Education and training benefits received by veterans and their children are not taxable and do not need to be declared on a tax return.
- Veterans may be eligible for the Earned Income Tax Credit (EITC) if they have earned income.
The IRS defines a veteran as a former US service member who served on active duty for at least 24 months and who wasn't dishonorably discharged. When it comes time to file your taxes, remember that as a veteran, tax benefits may be available to you, your spouse, your children, and your parents.
- It's important to note that veterans are former members of the armed forces that have been discharged. Someone on active duty in the armed forces isn't considered to be a veteran.
- Below, we’ll focus on tax breaks for veterans only. If you want to read more about tax breaks for active duty and reserve military members, check out Serving Uncle Sam: Tax Breaks for the Military.
5 tax breaks for veterans
The federal government offers numerous benefits to veterans, but a few stand out as advantageous when it comes to filing your taxes. Here are five tax breaks you should be aware of if you're a qualifying veteran.
1. Tax-free income
Most military pensions are federal taxable income. However, if you receive disability payments instead of or in addition to your pension, those payments are tax-free. You don't even need to report them on your tax return.
Veterans with a particular disability and/or are housebound may also qualify for Aid and Attendance (A&A) or Housebound benefits.
- These benefits can help offset the cost of hiring help or compensate a spouse who acts as a caretaker.
- A&A and Housebound benefits are exempt from both federal and state income taxes.
Other VA benefits that aren't counted as taxable income include:
- Grants for constructing or modifying a home to make it wheelchair accessible.
- Grants for motor vehicles for veterans who lost their sight or the use of their limbs.
- Benefits under a dependent-care assistance program.
2. Additional time to file amended tax returns
Typically, you have three years from the date you filed your tax return to amend the return and get a refund of overpaid taxes. In some cases, veterans have an extended window for filing amended tax returns.
A few years ago, the National Veterans Legal Services Program, a veterans' advocacy group, discovered that the Defense Finance and Accounting Service had been using an outdated process for withholding taxes from disability severance payments. As a result, many veterans are owed refunds on lump-sum disability payments. Unfortunately, relatively few veterans knew about those refunds in time to request a refund within the typical three-year window for filing an amended tax return.
In 2016, Congress passed the Combat-Injured Veterans Tax Fairness Act of 2016, which allowed certain veterans additional time to file an amended return and receive a tax refund. The Department of Defense (DOD) mailed letters to affected veterans in July 2018 and July 2019.
Veterans who received these letters must file Form 1040-X for the tax year the disability severance payment was made by the later of:
- One year from the date of the DOD notice.
- Three years after the due date for filing the original tax return for the year the disability severance payment was made.
- Two years after the tax was paid for the year the disability severance payment was made.
If you didn't receive a notice from the DOD, but you did receive a disability severance payment after January 17, 1991, you can still file an amended return. You'll need to contact the VA to obtain documentation to submit with your Form 1040-X.
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3. Tax-free education assistance
Veterans and their children may receive education and training benefits, such as the Post-9/11 GI Bill, to help pay for undergraduate, graduate or on-the-job training.
This education assistance is not taxable, and it doesn't need to be declared on your tax return.
4. Earned Income Tax Credit
Many veterans are also eligible for the Earned Income Tax Credit (EITC), which is designed to benefit low- to moderate-income workers and their families.
- The EITC is a refundable credit, meaning if it reduces your tax liability below zero, you can receive a tax refund greater than the amount you paid in through withholding or estimated tax payments.
- To qualify for the EITC, you must have earned income. This includes wages or salaries, but it can also include long-term disability benefits received before the minimum retirement age.
- The income limits and maximum credits vary each year. Tax filing software like TurboTax can help you identify and maximize your available tax credits.
5. Free tax preparation
When it comes down to it, there are quite a few different tax breaks that qualifying veterans could be taking advantage of. If you have more questions, visit the official websites for the IRS and Veteran Affairs to get the most up-to-date and accurate information available.
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