When retired from the military, filing your taxes may seem simpler than when you are still in active service. However, veterans can still benefit enormously from the tax code. We spoke to experts who provided helpful information for veterans filing their taxes.
You’ll pay federal taxes on your military retirement pay. However, if you participate in the Survivors Benefit Plan, which provides support for your beneficiaries when you die, your premiums would not be taxable. Your military pay isn’t considered earned income for calculating Social Security tax, and no Social Security payroll tax would be deducted from your pay.
Veteran education benefits you get for education and training through the Department of Veterans Affairs (VA) are tax-free. Disability benefits received from VA are also not taxable. This includes disability compensations and pension payments, grants for a vehicle or home modification, and benefits under the Dependent Care assistance program.
Note: Individuals recently granted Combat-Related Special Compensation or increased disability ratings might be eligible for a tax refund. However, this only applies to the years when the VA recessed your disability level. And you may need to file for an amended return.
Other benefits from the VA that are not taxed include:
- The interest you get from VA life insurance policies
- Money paid to survivors of members of the armed forces who died after September 10, 2001
- Benefits received under a dependent-care assistance program
- Payment received under the compensated work therapy program
- Any bonus pay received from a state, county, city, or town due to service in a combat zone
Individuals with missing money from stimulus checks may still obtain it from the IRS Recovery Rebate Credit. The IRS uses information from the VA to issue the stimulus checks. Anyone who received partial payments based on their last year’s information can file for a recovery rebate.
Even if you don’t owe any taxes for 2020, you are still eligible for the stimulus check and payments for eligible children provided you earn within the specified income limit.
- States usually limit their tax benefits to only veterans who are honorably discharged or released honorably
- State tax benefits often include tax exemptions on property taxes
- The benefits accrued to an honorably discharged veteran can be transferred to the spouse
- Most states have additional tax benefits for disabled veterans
- Every states’ revenue website outlines the state’s benefits for veterans and the steps to apply for them
Disabled veterans are usually eligible for property tax exemptions at the state level. These tax breaks are often tied to specific disability ratings and can help veterans save thousands in taxes. It is advisable to verify the structure of a state’s tax benefits for veterans and the taxpayer assistance center, state office, or tax professionals’ eligibility. Click here to see a list of all property tax exemptions.
Here Are Some Tax Breaks for Veterans From the Specific States
- California: the state waives state and local business license taxes and fees for veterans that sell goods except for alcohol. The state also waives specific property taxes for veterans and disabled veterans.
- Florida offers a $5,000 reduction in property assessed value for veterans with a 10% disability rating. Veterans with permanent disability related to their service and those using wheelchairs qualify for a total exemption from property taxes.
- Georgia: A qualifying disabled veteran can get up to $60,000 or more exempt from property taxes. Veterans with a 10% disability rating may qualify for exemptions from any occupational taxes, administrative fees, and other fees imposed by the local government for up to ten years.
A disabled veteran who receives a vehicle modification grant from the VA may be exempted from paying sales taxes upon selling the vehicle.
- New Mexico: veterans may get up to $4,000 worth of property taxes exemption. A property fully or jointly owned by a veteran with 100% disability may be exempted from property taxes if the property is the veteran’s principal residence.
- New York: the state provides several property taxes for veterans that offer partial or full tax breaks depending on the year the veteran served and when the property was purchased.