Money and taxes

Are VA disability payments taxable?

Short answer from the IRS: no. Here is what that covers, and what to do about back pay.

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The plain answer

The IRS says: "Don't include disability benefits you received from the VA in your gross income." Its list of examples includes disability compensation, pension payments, home grants and vehicle grants. VA says the same thing: disability benefits from VA should not be counted as part of your gross income. Publication 907 (tax year 2025) repeats it. So your monthly VA disability check is not income on your federal return. (IRS veterans page, VA News, 6 Feb 2025, IRS Pub 907)

Back pay and raised ratings

The IRS says a higher VA disability percentage, including a retroactive determination, may let you claim a federal tax refund by filing an amended return. If you paid tax in past years on military disability or retirement money and VA later decided it was service-connected retroactively, the IRS says you may be able to file Forms 1040-X for those years. For a retroactive service-connected disability determination, the IRS says the time limit to claim a refund is extended by one year from the date of the determination, for tax years beginning within 5 years of that date. The IRS says veterans with questions on refund claims should get a competent tax professional. (IRS FAQ on disabled veterans pension income)

If your military retired pay comes from DFAS, the IRS says the Form 1099-R you get from DFAS normally shows the taxable part correctly.

Back pay and raised ratings

Page reviewed September 2026.one yearone year5 years5 years
For a retroactive service-connected disability determination, the IRS says the time limit to claim a refund is extended by one year from the date of the determination, for tax years beginning within 5 years of that date.IRS FAQ on disabled veterans pension income

Severance pay: the part that surprises people

Combat-related severance is not taxable. The IRS says not to include the one-time lump-sum disability severance payment from the Department of Defense received on separation for combat injuries. If tax was already taken out, the IRS says to file an amended return for a refund.

Severance can be taken back out of your VA pay. Federal law says disability severance pay is deducted from VA compensation for the same disability (10 U.S.C. 1212). There is an exception: no deduction for severance received for a disability incurred in the line of duty in a combat zone or during combat-related operations as designated by the Secretary of Defense. Separation pay or readjustment pay under other laws is also deducted from VA disability compensation (10 U.S.C. 1174(h)). If you got a lump sum when you left, ask VA how much will be withheld before you count on the first checks.

State taxes

Many states have their own income tax rules and veteran tax breaks. Check with your state tax agency or your state veterans affairs office.

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