What Does the IRS Require for Reporting VA Benefits?

U.S. military service awards some IRS exemptions.

The Internal Revenue Service (IRS) taxes veterans' pensions but does not tax veterans' disability benefits for any disability received as a result of military service. IRS regulations are clear as to which benefits require reporting. The Form 1099-R that veterans receive from the Department of Veterans Affairs (VA) usually has the correct amount to claim on your federal income taxes, with appropriate items included and excluded.


Form 1099-R

If you have taxable income from the VA, you will receive Form 1099-R referencing amounts for reporting for your federal income taxes. The VA does not report some forms of non-taxable income to the IRS, and you do not need to report it on your Form 1040. If you have both a military pension and a disability, your Form 1099-R will reflect a subtraction from your pension for the disability payments.


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Non-Taxable Benefits

The IRS does not tax any disability payments made to you or your family by the VA. Taxes do not apply to grants for wheelchairs, vans or similar disability equipment from the VA. Benefits paid under a dependent-care assistance program are exempt as are payments made under the compensated work therapy program. The IRS does not tax education, training and subsistence allowance from the VA, and you do not need to include these on your income tax return. Veterans' insurance proceeds and dividends are exempt from federal taxation as well.


Federal Income Taxes

Assemble your information and determine if you need to file a federal income tax return. IRS Publication 17 has minimum income for different categories based on marriage status and source. If you operate a business or are self-employed, business income in excess of $400 requires a tax return. If you are single and your gross income from all sources is under $9,750, you may not need to file a federal income tax return. Filing a return may be to your advantage as you may qualify for one or more tax credits under the current tax regulations.


Reporting Your Income

If you receive Form 1099-R from the VA, you will need to report and may owe taxes on the amounts shown as taxable income. If the income is a retirement pension, the form may have taxable and non-taxable amounts. The gross distribution in Box 1 is the total, but Box 2a is the taxable amount for your federal tax return. Report your VA pension income on your federal tax return, along with any income from sources other than the VA. Total your income from all sources and subtract adjustments. Subtract deductions and exemptions to arrive at your total tax. Complete forms for any credits and subtract the credits from your taxes. The remainder is tax you owe or your refund amount.



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