Most military pensions are federal taxable income. However, if you receive disability payments instead of or in addition to your pension, those payments are tax-free. You don't even need to report them on your tax return.
Veterans with a particular disability and/or are housebound may also qualify for Aid and Attendance (A&A) or Housebound benefits.
- These benefits can help offset the cost of hiring help or compensate a spouse who acts as a caretaker.
- A&A and Housebound benefits are exempt from both federal and state income taxes.
Other VA benefits that aren't counted as taxable income include:
- Grants for constructing or modifying a home to make it wheelchair accessible.
- Grants for motor vehicles for veterans who lost their sight or the use of their limbs.
- Benefits under a dependent-care assistance program.
Here is a TurboTax link for military veterans.
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