The Internal Revenue Service (IRS) and the Department of Veterans Affairs (VA) offer special tax benefits to our country’s veterans and their dependents, including tax-free compensation for disability.
The Department of Veterans Affairs administers health insurance, life insurance and retirement benefits programs for veterans and their dependents. The VA also provides educational, disability compensation and home-loan programs for veterans. The agency provides survivors’ benefits to dependent family members. Most of these benefits are tax-free.
Education and Training
The IRS allows education reimbursement and vocational training subsidies to be treated as tax-free benefits. Eligible veterans can receive tax-free disability and pension benefits through the VA. These tax benefits are also extended to the eligible veterans’ dependents.
Grants and Allowances
Grants or cash allowances provided to disabled veterans to modify their homes and vehicles also are tax-free. Work therapy and rehabilitative service earnings also are not taxable.
Stimulus payments for 2008 were provided to taxpayers who filed 2007 returns and earned income for that year in excess of $3,000. Since VA income may be untaxed, it is typically not considered to be earned income. The IRS allowed otherwise ineligible veterans to receive these tax-stimulus checks by eliminating the $3,000 income-threshold requirement.
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