Tax season is upon us and with that comes our annual influx of questions from concerned Veterans with regard to their taxes. In this article, I have taken information directly from the IRS website to give you the most precise information out there.
Partnership with VA
The IRS and US Department of Veterans Affairs entered into a Memorandum of Understanding in 2015. The primary focus of the MOU is to provide free tax preparation services to Veterans and their families.
Partnering organizations prepare tax returns free of charge for low- to moderate-income taxpayers. Also check out the partner Outreach Connection for links to newsletter articles, podcasts, widgets and other electronic products to help reach out to customers with timely tax news. If you represent a Veterans organization, why not look further to see how you can become involved?
Free Tax Preparation Services
Each year, millions of people have their taxes prepared for free by IRS-certified volunteers. The Volunteer Income Tax Assistance and Tax Counseling for the Elderly programs have helped people for more than 40 years. Over 1.3 million free tax returns were prepared for Veterans since the inception of the MOU at nearly 8,000 free tax preparation sites across the country. Here are some details about VITA and TCE:
- The IRS works with local community groups to train and certify VITA and TCE volunteers.
- VITAÂ generally offers free tax return preparation to those who qualify.
- TCEÂ is mainly for people age 60 or older. The program focuses on tax issues unique to seniors. AARP participates in the TCE program through AARP Tax-Aide.
- VITA and TCE provide free electronic filing. E-filing is the safest, most accurate way to file your tax return. If you combine e-file with direct deposit, you can get your refund faster.
IRS Free File
Whether you draw a paycheck, are self-employed or own a small business, you can use all available tax forms you need for free with IRS Free File. If you made $69,000 or less during 2019, you qualify for free brand-name software offered through a partnership between the IRS and leading tax software providers. Some of these providers offer free federal and free state return preparation and electronic filing. If you made more than $69,000, you can use Free File Fillable Forms, electronic versions of IRS paper forms best for someone experienced in return preparation.
Earned Income Tax Credit
Many Veterans are eligible for various tax credits including the Earned Income Tax Credit, a refundable federal income tax credit for low- to moderate-income workers and their families. Roughly two million Veterans and military households receive the EITC, the refundable component of the Child Tax Credit or both, according to Center on Budget and Policy Priorities. The credits provide a tax break for eligible service members, allowing them to keep more of what they’ve earned and build a financial cushion for unexpected emergencies. The Tax Credits for Working Families organization produced a video sharing how tax credits are a vital resource for many who have served our country.
Military OneSource Resources for Transitioning Service Members and Families
Military OneSource is a program funded by the Department of Defense that provides a range of free resources for Veterans and their immediate family up to 365 days after separation or retirement from the military. MilTax, Military OneSource’s tax services, provides online software for eligible individuals to electronically file a federal and up to three state returns for free through the Military OneSource website. The service also includes tax consultants available by phone to answer tax questions related to deployment, multi-state filing, and combat pay. They also share information on military-specific and civilian tax deductions and credits.
Military OneSource is available 24/7 at 800-342-9647 and online at MilitaryOneSource.mil.
Special Tax Considerations
Veterans may be eligible to claim a federal tax refund based on:
- An increase in the Veteran’s percentage of disability from the Department of Veterans Affairs (which may include a retroactive determination)Â or
- The combat-disabled Veteran applying for, and being granted, Combat-Related Special Compensation, after an award for Concurrent Retirement and Disability.
Special tax considerations for disabled Veterans occasionally result in a need for amended returns.
Combat-Injured Veterans Tax Fairness Act of 2016
The Combat-Injured Veterans Tax Fairness Act of 2016, went into effect in 2017. Under this federal law, Veterans who suffer combat-related injuries and are separated from the military are not to be taxed on the one-time lump sum disability severance payment they receive from the Department of Defense. This law instructs DoD to identify Veterans who were taxed in order for them to file an amended return to receive their refund. Go to Combat-Injured Veterans Tax Fairness Act Claim Information for more details.
VA Disability Benefits
Disability benefits received from the VA should not be included in your gross income. Some of the payments which are considered disability benefits include:
- 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 lost their sight or the use of their limbs, or
- Benefits under a dependent-care assistance program.
If you are a military retiree and receive your disability benefits from the VA, see IRS Publication 525 for more information.
VA Education Beneftis
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.
If you qualify for one or more of the education tax benefits discussed in Publication 970, Tax Benefits for Education, chapters 2 through 12, you may have to reduce the amount of education expenses qualifying for a specific tax benefit by part or all of your VA payments. This applies only to the part of your VA payments that is required to be used for education expenses.
Example: You have returned to college and are receiving two education benefits under the latest GI Bill: (1) a $1,534 monthly basic housing allowance (BHA) that is directly deposited to your checking account, and (2) $3,840 paid directly to your college for tuition. Neither of these benefits is taxable and you don’t report them on your tax return. You also want to claim an American opportunity credit on your return. Your total tuition charges are $5,000. To figure the amount of credit, you must first subtract the $3,840 from your qualified education expenses because this payment under the GI Bill was required to be used for education expenses. You don’t subtract any amount of the BHA because it was paid to you and its use wasn’t restricted.
You may want to visit the VA website for specific information about the various VA benefits for education.
The Tax Information for Students webpage is an additional resource that provides links to a broader range of student-related tax topics.
Final Thoughts
While this looks like a lot of information, it can all be summed-up in a simple statement; “VA benefits are tax-exempt.” Keep this simple fundamental in mind and you’ll answer most of the questions you may have related to VA benefits and taxes. If doubts remain, consult with a qualified tax professional for your own safety. Whatever you do, be sure to file your taxes!
