Army National Guard: Active Duty Under Title 10 USC or Title 32 USC (Full-Time National Guard Duty)
Military retirement pay based on age or length of service is considered taxable income for Federal income taxes. However, military disability retirement pay and Veterans' benefits, including service-connected disability pension payments, may be partially or fully excluded from taxable income.
Service members with service-connected disabilities may be eligible for Federal income tax exclusions of Veterans' benefits and disability pension payments.
Military Retirement Pay
Military retirement pay based on age or length of service is taxable and must be included as income for Federal income taxes. The amount a Retiree pays to participate in the Survivors Benefit Plan (SBP) is excluded from taxable income. For Social Security tax purposes, military retirement pay is not considered earned income and no Social Security payroll taxes (also known as Federal Insurance Contributions Act (FICA) taxes) are withheld from military retirement pay.
Military Disability Retirement Pay
Military Disability Retirement Pay received as a pension, annuity or similar allowance for personal injury or sickness resulting from active service in the armed forces should not be included in taxable income if any of the following conditions apply:
You were entitled to receive a disability payment before September 25, 1975
You were a member of the military (active or reserves) or were under a binding written commitment to become a member on September 24, 1975
You receive disability payments for a combat-related injury. This is a personal injury or sickness that:
Resulted directly from armed conflict
Took place while you were engaged in extra-hazardous service
Took place under conditions simulating, including training exercises such as maneuvers, or
Was caused by an instrumentality of war
You would be entitled to receive disability compensation from the Department of Veterans Affairs (VA) if you filed an application for it (the exclusion under this condition equals the amount you would be entitled to from the VA).
Veterans Benefits
Veterans' benefits are also excluded from Federal taxable income. The following amounts paid to Veterans or their Families are not taxable:
Education, training, and subsistence allowances
Disability compensation and pension payments for disabilities paid either to Veterans or their Families
Grants for homes designed for wheelchair living
Grants for motor vehicles for Veterans who lose their sight or use of their limbs
Veterans' insurance proceeds and dividends paid either to Veterans or their beneficiaries, including the proceeds of a Veteran's endowment policy paid before death
Interest on insurance dividends left on deposit with the VA
Benefits under a dependent-care assistance program
The death gratuity paid to a survivor of a member of the Armed Forces who died after September 10, 2001
Payments made under the compensated work therapy program
Any bonus payment by a state or political subdivision because of service in a combat zone.
Retroactive VA disability determination
If you retire from the Army based on years of service and are later given a retroactive service-connected disability rating by the VA, your retirement pay is excluded from income up to the amount of the VA disability benefits you would have been entitled to receive. You can claim a refund on any taxes paid on the excludable amount by filling an amended return on Form 1040x for each previous year during the retroactive period (subject to statute of limitations).
You may exclude 100% of any severance benefit from your income if you receive a lump-sum disability severance payment and are later awarded VA disability benefits. However, any lump-sum readjustment or other non-disability severance payment you receive upon your release from active duty must be included in your income even if you are later given a retroactive disability rating by the VA.
Special statute of limitations
The statute of limitations for claims of retroactive disability is generally within three years of when a tax return was filed. However, in cases where a retroactive service-connected disability rating determination is received, the statute of limitations is extended by a one-year period from the date of determination for claims for credit or refund that are filed after June 17, 2008. This special statute does not apply to any tax year that began more than five years prior to the date of determination.
FAQs
Military retirement pay based on age or length of service is considered taxable income for Federal income taxes. However, military disability retirement pay and Veterans' benefits, including service-connected disability pension payments, may be partially or fully excluded from taxable income.
How are military pensions taxed federally? ›
A Payments you receive as a member of a military service generally are taxed as wages except for retirement pay, which is taxed as a pension. If your retirement pay is based on age or length of service, it is taxable and must be included in your income as a pension on lines 5a and 5b of Form 1040 or Form 1040-SR.
Are disabled Veterans exempt from federal taxes? ›
Federal Taxes
Veterans education benefit payments received through VA for education and training are tax-free. Disability benefits received from VA, such as disability compensation, pension payments and grants for home modifications, are not taxable.
Are disability pensions taxed federally? ›
Disability Pensions. If you retired on disability, you must include in income any disability pension you receive under a plan that is paid for by your employer. You must report your taxable disability payments as wages on line 1 of Form 1040 or 1040-SR until you reach minimum retirement age.
Do VA disability benefits count as income? ›
Federal tax treatment of VA disability benefits is simple: the Internal Revenue Service (IRS) does not consider veterans disability benefits taxable income. That includes not just monthly disability payments, but other veterans benefits such as from GI Bill programs and training allowances administered by the VA.
How much federal tax will I pay on my pension? ›
Lump-Sum Benefits
Unless you choose no withholding, a lump-sum benefit that is not an eligible rollover distribution, the taxation is 10% of the distribution.
Is military retirement pay taxable for 100 disabled Veterans? ›
Is Retirement Pay Taxable for Disabled Veterans? The IRS considers military retirement pay taxable income, so retired military members will have to pay federal taxes. While many states that have an income tax also consider retirement pay taxable, some don't tax retired military income.
How much of my VA disability is taxable? ›
VA Disability Benefits
Disability benefits you receive from the Department of Veterans Affairs aren't taxable. You don't need to include them as income on your tax return. Tax-free disability benefits include: Disability compensation and pension payments for disabilities paid either to veterans or their families.
Do spouses of 100% disabled veterans get benefits after death? ›
Benefits for the Surviving Spouse of a 100% Disabled Veteran
If your spouse dies with a 100% disability rating, you may be entitled to Dependency and Indemnity Compensation (DIC). For 2024, the base rate of compensation for a surviving spouse is $1,612.75/month.
Can I collect military retirement VA disability and Social Security? ›
SSDI and VA disability compensations are not affected by each other, so you may be eligible to receive both.
People who receive a disability pension through their employer must report that pension as income on Form 1040 if they retire early with a disability. They will pay income tax on the pension, and they also will pay Social Security and Medicare taxes on it, since it is considered wages.
Do I have to report VA benefits to the IRS? ›
Payments you receive for education, training, or subsistence under any law administered by the VA are tax free. Don't include these payments as income on your federal tax return.
What happens to my VA disability when I turn 65? ›
After veterans reach Social Security's full retirement age, VA's disability payments continue at the same level. By contrast, the income that people receive from Social Security or private pensions after they retire usually is less than their earnings from wages and salary before retirement.
Is VA disability going away in 2024? ›
Under that phaseout, veterans whose gross household income was $170,000 or higher in calendar year 2023 and who would have received the average annual payment would no longer receive any disability compensation from VA in calendar year 2024.
Can a 100% disabled veteran get Social Security? ›
A Veterans Affairs compensation rating of 100% P&T doesn't guarantee that you'll receive Social Security disability benefits. To receive disability benefits from Social Security, a person must have a severe impairment expected to last at least one year or to result in death.
What is the 5 year rule for VA disability? ›
The VA 5-year rule protects your disability claim by not allowing the VA to reduce your disability rating unless your condition has significantly improved over time. This rule pertains to a rating that has been in effect for five years or longer. After a five-year period, the rating is considered a stabilized rating.
Is military income taxed federally? ›
While all pays are taxable, most allowances are tax-exempt. The primary allowances for most individuals are BAS and BAH, which are tax-exempt. Conus COLA is one allowance that is taxable. A law change mandated that every allowance created after 1986 would be taxable.
Where is military pension not taxed? ›
Download Table Data
| State | Don't Tax Military Retirement | Military Retirement Pay Tax Info |
|---|
| Arkansas | Not taxed | Military Retirement Pay Exempt |
| California | Fully taxed | No Special Tax Treatment of Military Retirement Pay |
| Colorado | Partially taxed | 1000000000000000 |
| Connecticut | Not taxed | Military Retirement Pay Exempt |
47 more rowsIf you are a member of the military who served in a combat zone, your income may not be taxed by the IRS. Tax-exempt military pay applies if: You're a member of the U.S. Armed Forces. You serve in a designated combat zone or were as hospitalized for wounds, disease, or injury in a designated combat zone.
How many states tax military pensions? ›
States That Fully Tax Military Retirement Pay
As of 2024, California and the District of Columbia (Washington, D.C.) are the only locations with no exemption for military retirement pay, which means military retirement pay is taxed at the standard state income tax rate.
Military retirement pay based on age or length of service is taxable and must be included as income for Federal income taxes. The amount a Retiree pays to participate in the Survivors Benefit Plan (SBP) is excluded from taxable income. For Social Security tax purposes, military retirement pay is not considered earned income and no Social Security payroll taxes (also known as Federal Insurance Contributions Act (FICA) taxes) are withheld from military retirement pay.
