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What veterans should know about tax-free benefits

 

IRS Tax Tip 2026-81, Nov. 10, 2026

As Veterans Day approaches, let’s provide some veteran specific tax information and resources. Certain benefits from the Department of Veterans Affairs may not be taxable. It’s important to know what’s considered tax-free, so they understand how to report when it’s time to file their federal tax return.

Don’t include these benefits as part of taxable income 

  • VA disability benefits, including: 
    • Disability compensation and pension payments to veterans and their families
    • Grants for designing a wheelchair accessible home
    • Grants for motor vehicles for loss of sight or use of limbs
    • Benefits under a dependent-care assistance program
  • VA education benefits 
  • One-time lump-sum disability severance payments received from the Department of War by veterans who separated from the military because of combat-related injuries. Veterans who previously paid taxes on these payments can file an amended return to get a refund.

While there are many benefits that aren’t taxable, this doesn’t mean that’s the case for all military-related income. For example, military retirement based on age or length of service is generally taxable income. 

Tax refunds and available tax credits

Veterans may be eligible to get money back or reduce their tax liability by claiming certain refunds or credits. 

  • Refund related to VA disability compensation. Veterans may be able to claim a federal tax refund if they receive: 
    • An increased VA disability rating, including retroactive determinations
    • Combat-related special compensation while receiving both military retirement pay and disability compensation

Eligible veterans may file an amended return to get a refund.

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