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Veteran’s disability benefits from the U.S. Department of Veterans Affairs are generally not included in taxable income. The portion of a Veteran’s disability payment which qualifies as a service-connected disability should not be included in your taxable income. If you receive a disability pension based on years of service, you should include that amount or portion of a pension in your taxable income.

Service-connected disability pension payments you can exclude from taxable income result from active service in the:

• Armed forces of any country
• National Oceanic and Atmospheric Administration
• Public Health Service
• Foreign Service

Your Veteran’s disability payments should be excluded from taxable income if any of the following conditions apply:

• You were entitled to receive a disability payment before Sept. 24, 1975
• You were a member of or committed to become a member of a listed government service before Sept. 24, 1975
• You receive the disability payments for a combat-related injury under certain situations
• You would be entitled to receive full or partial disability compensation from the Department of Veteran Affairs if you filed an application

Refer to IRS Publication 907 for qualifying details.

 Nontaxable disability income (and certain other nontaxable income) can be reported in TurboTax to increase your sales tax deduction, lowering your overall tax liability. In TurboTax:

1. Select the Federal Taxes tab (Personal tab in Home & Business product)
2. Then choose Deduction & Credits and click on Explore On My Own.
3. Scroll down to Estimates and Other Taxes Paid, and click on the Sales Tax Start/Update box.
4. In the Sales Tax interview, click Continue with Sales Tax and select Easy Guide.
5. Enter your location and sales tax information. When finished, click Done.
6. Next is a screen titled Nontaxable Income, click Yes to add your nontaxable income.

In the Nontaxable Income box on the next screen, enter the total amount of all of your nontaxable income. Include the nontaxable portion of your Veteran’s disability income from the U.S. Department of Veterans Affairs. Do not include taxable income entered in other areas of TurboTax; they are automatically included when calculating the sales tax deduction.

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