Veterans cover more than 7 percent of the US population. This includes 17.9 million people. 

More than 5 million veterans in the US are suffering from service-related disabilities. 

About 5.3 million US veterans received disability benefits from the federal government. The Department of Veteran Affairs (VA) spent $125 billion for such payment purposes. 

Furthermore, the number of veterans receiving VA healthcare has increased over the last few years. 

This blog will discuss whether veterans receive tax-exempted or tax-inclusive disability benefits from the federal government. 

The Department of Veteran Affairs disability benefits are a type of tax-free payment for US veterans who have incurred service-related injuries. 

Veterans who developed mental or physical illnesses during, before, or after separation from uniformed services are eligible to receive this benefit. However, the injury or the disease must be heightened during the military service term. 

Moreover, veterans have a disability rating that helps determine the severity of their condition. Based on this data, the Department of Veteran Affairs finalizes the amount for disability payment benefits. 

Additionally, it is mandatory to provide evidence to support the degrading condition of the veteran. 

Several resources can help US veterans understand their rights better. Some of them are – 

• Veterans Health Administration – Veterans can speak with a VA treatment team or their advocates to get information related to the rights and responsibilities of a patient with disabilities. 
• U.S. Department of Labor – This department gives insights into the employment and reemployment of uniformed service members. It highlights how to protect the job rights of veterans. Moreover, the department helps veterans find employment after separation from federal services.
• U.S. Department of Veteran Affairs – The department shares valuable information, resources, facility locations, and benefits for veterans.

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The Internal Revenue Service (IRS) does not consider the VA disability benefits as an income. Therefore, no taxes are deducted from the monthly payments for this type of benefit. 

The creation of the Bureau of War Risk Insurance in 1917 started the tax exemption benefits for disabled VAs. This law eliminated taxation charges from the death and disability benefits. 

Let us determine the reasons why VA benefits are tax-free – 

• Monthly tax-free payments for disabled veterans who get sick or injured during active military service. 
• The GI Bill, originally known as the Servicemen’s Readjustment Act of 1944 was formed to provide several benefits to World War 2 veterans of the United States. Therefore, all veterans who fall in this category get tax-free payments to provide for the tuition, education, and housing fees for their dependents.

Some exceptional situations where taxes are deducted even on the VA disability benefits are – 

• The disability benefits for veterans are taxable if it is used for educational or training purposes. 

• Veterans who are eligible for legal settlements and service-related awards can be subject to tax deductions. For example, taxes may be charged if the portion of the settlement is contributed to lost wages.

Veterans should keep the following points in mind while filing for their taxes – 

• The VA disability benefit should not be reported as taxable income. 
• Severely disabled veterans get additional tax breaks for property acquisition. However, it is mandatory to be rated as 100 percent disabled. Also, this factor depends on the particular state laws. 
• Paralyzed and blind veterans qualify to get higher deductions through federal tax returns. 
• Tax relief for veterans who used VA grants to repair homes. 

NOTE: It is best to consult with a financial or retirement advisor who is adept with the federal and state tax laws for veterans. They provide the best tax filing strategies to get VA disability benefits. 

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Veterans can maximize their tax savings and reduce deductions following federal and state laws with proper information and education related to their disability benefits, rights, and responsibilities. 

PSR Assurance offers financial advisory services to veterans. Talk to our experts and identify the rules and limitations related to the Department of Veteran Affairs in the United States. 

Get maximum disability benefits and reduce taxable income with our personalized solutions.