As stated in Publication 525 page 18 - https://www.irs.gov/pub/irs-pdf/p525.pdf#page=18
Service-connected disability. You may be able to exclude from income amounts you receive as a pension, annuity, or similar allowance for personal injury or sickness resulting from active service in one of the following government services.
• The armed forces of any country.
• The National Oceanic and Atmospheric Administration.
• The Public Health Service.
• The Foreign Service.
Conditions for exclusion. Don’t include the disability payments in your income if any of the following conditions apply.
1. You were entitled to receive a disability payment before September 25, 1975.
2. You were a member of a listed government service or its reserve component, or were under a binding written commitment to become a member, on September 24, 1975.
3. You receive the disability payments for a combat-related injury. This is a personal injury or sickness that:
a. Results directly from armed conflict;
b. Takes place while you're engaged in extra-hazardous service;
c. Takes place under conditions simulating war, including training exercises such as maneuvers; or
d. Is caused by an instrumentality of war.
4. You would be entitled to receive disability compensation from the VA if you filed an application for it. Your exclusion under this
condition is equal to the amount you would be entitled to receive from the VA.
Pension based on years of service. If you receive a disability pension based on years of service, in most cases, you must include it in your income. However, if the pension qualifies for the exclusion for a service-connected disability (discussed earlier), don't include in income the part of your pension that you would have received if the pension had been based on a percentage of disability. You must include the rest of your pension in your income.
Based on the above do you or do you not qualify for the exclusion?
