I am a 100% VA-rated veteran who also has a military retirement. I expected that Turbo Tax would have informed that according to Pub 525 Taxable and Nontaxable Income Rev 2020,
1. Certain military and government disability pensions aren't taxable.
2. 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.
3. Don’t include the disability payments in your income if....You receive the disability payments for a
combat-related injury.
4. 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.
4. If you retire from the U.S. Armed Forces based on years of service and are later given a retroactive service-
connected disability rating by the VA, your retirement pay for the retroactive period is excluded from income up to the amount of VA disability benefits you would have been entitled to receive.
Turbo Tax should have helped me to understand this situation. Instead, someone at work shared the information. This person is not a tax professional at all.
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Please be aware, if you retired under a disability law (Temporary Disability Retirement List or Permanent Disability Retirement List) and your retirement is not taxable then DFAS will not issue you a 1099-R. If this is the case then you do not need to enter anything in regards to this into TurboTax.
If you receive a 1099-R then this amount is taxable and will have to be entered into TurboTax:
"TDRL/PDRL Exemption: If you retired under a disability law (Temporary Disability Retirement List or Permanent Disability Retirement List), your retired pay will be fully non-taxable if your pay is calculated based upon your military (not VA) disability percentage and you meet one of the following conditions:
The welcome letter you received from DFAS when you first retired indicates whether your pay is computed using your military percentage of disability or your years of service." (DFAS)
If you had any retroactive changes and therefore have to amend your previous returns then please see How to amend (change or correct) a return you've already filed.
I appreciate the advice but that does not solve my problem with Turbo Tax. This should have been something Turbo Tax helped me with. I assumed Turbo Tax would have provided me the maximum return by asking the questions that would result in a lower taxable income. Instead, I had to find this out to be a Friend.
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