For federal income tax purposes, military retirement pay is usually taxable, depending on the service member’s age or duration of service. Veterans’ benefits and military disability retirement pay are an exception, though, because they may provide possible exclusions from taxable income.
VA Disability Benefits; Source- CNET
Survivors Benefit Plan
The Survivors Benefit Plan (SBP) participation amount paid for military retirement pay is not included in the employee’s taxable income. Social Security payroll taxes are not deducted from military retirement pay even though it is taxable since it is not regarded as earned income for Social Security tax purposes. Retirement Due to Military Disability Under some circumstances, compensation for personal injury or illness resulting from active duty that is received as a pension or annuity may be exempt from income taxes.
Eligibility For VA Disability Benefits
A military member on September 24, 1975, being eligible for disability payments for an injury sustained in combat, receiving disability payments before September 25, 1975, or being eligible for disability compensation from the Department of Veterans Affairs (VA) are some examples of these requirements. Veterans’ benefits are often exempt from federal taxable income, including pension payments, education allowances, and disability compensation. Furthermore included in the non-taxable category are a variety of gifts, reinsurance proceeds, and dividends given to veterans or their beneficiaries.
Additional exclusions include incentives awarded by a state or administrative subdivision for service rendered in a combat zone, payments made under the paid work therapy program, and death gratuities. When the VA grants a retroactive service-connected disability rating, several factors need to be taken into account. Retirement pay may not be deducted if a retiree receives a retroactive disability rating, up to the maximum amount of VA disability benefits to which they are entitled during that time.
Taxation On VA Disability Benefits
Regardless of age or service duration, military retirement pay is fully taxable. You must record the amount of your pension as taxable income for the year if you meet any of these requirements. But if you deduct a certain amount from your retirement income to provide an annuity for your husband or another survivor, that particular amount shouldn’t be counted against your taxable income. To ensure that these financial concerns are handled properly, it is advisable to seek advice or talk with a tax professional.
