If you are a veteran and you owe taxes you cannot afford to pay, you may be eligible for IRS relief programs. Veterans also receive special consideration in certain other tax matters. The IRS defines a veteran as an individual who has served at least 24 consecutive months in active duty and has not received a dishonorable discharge. This includes full-time members of the Army, Navy, Marines, Air Force, and Coast Guard as well as commissioned officers of certain federal agencies. Spouses, children, and parents of deceased and disabled veterans also qualify.
Your taxable gross income does not include your VA disability benefits. This includes:
Spouse and dependent benefits are also free from income tax. These benefits include the one-time death gratuity payment for the families of deceased service members, survivor’s pensions, and Dependency and Indemnity Compensation payments.
Some veterans are employed through the Compensated Work Therapy (CWT) program, which provides vocational rehabilitation services to individuals with histories of homelessness, substance abuse, and mental illness. Wages for CWT employment are not taxed.
Veterans who have served for at least 20 years may be eligible for retirement pay. Although retirement pay is taxable as income, a percentage may be considered tax exempt. This includes:
If your disability percentage has been increased by the Department of Veteran Affairs (VA) or if you have been accepted for Combat-Related Special Compensation after retiring as a disabled veteran, you might qualify for a federal tax refund.
To determine eligibility, you must file IRS Form 1040X to amend the return for the year in which disability percentage was initially determined or reassessed. This form must be filed on paper and include copies of all VA documents and paperwork from Defense Finance and Accounting Services. The latter department will issue a 1099-R for the taxable portion of your compensation.
A certified public accountant (CPA) can help you determine whether you qualify for the refund. If you claim the refund and are ineligible to do so, you may be subject to penalties and interest.
Since 2015, the IRS has agreed to provide free tax preparation services for veterans and their families. These services are provided by volunteers who are certified by the IRS and are available at eight sites throughout the nation. Free electronic filing is available through this Volunteer Income Tax Assistance (VITA) program. Veterans older than age 60 can also obtain free tax preparation through AARP Tax-Aide and/or Tax Counseling for the Elderly.
Veterans can access free financial planning support through the Financial Coaching Initiative offered by the Consumer Financial Protection Bureau. These services include certified financial coaches who meet with veterans at Armed Forces Services Corporation locations throughout the U.S. You can find a coach near you online or call 1-844-90-GOALS.
About 2 million veteran families qualify for the Earned Income Tax Credit (EITC), which supports taxpayers of low to moderate income. This tax break is designed to help these families build an emergency savings account and access long-term financial stability. Many veteran families also qualify to receive the Child Tax Credit.
This federal law creates tax-exempt status for the one-time lump sum disability severance payment that disabled veterans who were injured in combat receive from the Department of Defense. This agency will identify affected veterans so they can file an amended return to take advantage of this exemption.
Some states allow veterans to deduct the cost of their property tax in certain circumstances. This guide provides information about property tax veteran benefits by state.
Veterans who are struggling to pay their taxes should first make sure they have taken full advantage of the credits described above. If you’re not sure, an expert from the VITA program can help you review your past returns and see if they need to be amended. This may reduce the amount of past-due tax assessed. Next, take the steps below to get on the road to paying back your tax debt.
Individuals concerned about their ability to pay off their debt can answer a few basic questions on Solvable. Credit card debt, student loan debt, and tax debt relief programs are available. We’ll match you with vetted companies who specialize in creating financial solutions.