Do I need to report my veteran disability payments?
Disability benefits resulting from active service in the armed forces (regardless of country), NOAA, the Public Health Service, and the Foreign Service are not taxable except when the pension (or part of it) is based on years of service.
Report the amount that's based on years of service and exclude the portion attributable to a service-connected disability.
If any of these conditions apply, you don't need to report your disability payments:
- You were entitled to receive a disability payment before Sept. 24, 1975;
- You were a member of (or committed to becoming a member of) the applicable government service before Sept. 24, 1975;
- You receive the disability payments for a combat-related injury under certain situations; or
- You would be entitled to receive full or partial disability compensation from the Department of Veteran Affairs if you filed an application.
Now if you're taking the sales tax deduction, you should enter your nontaxable benefits to maximize the amount of your deduction.