Is anyone familiar with the new tax change which is found in IRS Pam 525 and deals specifically with Military "retirement pay" reduction, not VA disability pay.

[cw4haskins]

For instance: as a retired 70% disabled veteran, my 26 year "retirement pay", not disability pay, is only Federally taxed at a 30% earned income rate.

[DaveF1006]

Do you mean IRS publication 525?  if so, here is the link to the publication.  Go to page 16 where it addresses retirement military pay and disability. Also check this link, that is more useful in referencing the information you are looking for.

[cw4haskins]

DaveF1006,

  Thanks for your response, but I am referring to pages 17 - 19 of IRS publication 525 that was updated in 2016 which address the VA rating above 20% being able to deduct the portion of that disability percentage from their regular retired pay. I did not find any information on this in the second link you posted and am familiar with the info in the first link publication. I was actually looking for info on where this reduction in income would be entered in the Turbo Tax program?   Thanks

[DanaB27]

Usually, the Form 1099-R issued to the veteran by Defense Finance and Accounting Services correctly reflects the taxable portion of compensation received. No changes would be required since it has already been adjusted for any non-taxable awards.

But you may be eligible to claim a federal tax refund if there has been an increase in your percentage of disability from the Veterans Administration, or you´ve been granted Combat-Related Special Compensation after an award for Concurrent Retirement and Disability. If the change is retroactive then you will have to file an amendment (1040X) to get a refund. 

Please see Special Tax Considerations for Veterans for more details.