Tax Breaks for Veterans

(April 2024)

Tax Breaks for Veterans

In This Article

Are you a veteran who wants to save money on your taxes? If so, you may be eligible for various tax breaks that can reduce your tax liability and increase your refund. The purpose of these tax breaks is to assist you financially while also acknowledging and rewarding your contribution to the nation.

Learn from this article how to take advantage of the tax breaks for veterans that apply to your situation and how to claim them

By following these steps in this guide, you can make sure that you are not overpaying and are getting the most out of your tax benefits.

Here are some steps to claim your Veteran tax breaks:

  1. Identify Your Tax Status and Tax Breaks Eligibility as a Veteran
  2. Claim Your Tax-free Income
  3. File Amended Tax Returns if Need Be
  4. Deduct Your Medical Bills
  5. Take Advantage of Your Education Benefits

1.  Identify Your Tax Status and Tax Breaks Eligibility as a Veteran

The first step to claiming your tax breaks for veterans is to know your tax status as a veteran. Your tax status depends on several factors, such as:

  • Your disability level and service-connection status
  • The type and amount of compensation you receive from the Department of Veterans Affairs (VA) or other sources
  • The date and reason of your discharge or separation from the military
  • Your eligibility for other tax benefits, such as the Earned Income Tax Credit or the Child Tax Credit

Depending on your tax status, you may qualify for different tax breaks, such as:

  • Tax-free income from disability payments, grants, and other sources
  • Additional time to file amended tax returns if you are entitled to a refund of taxes you paid on your disability severance payment
  • Exclusion of certain combat pay and other military-related income from your taxable income
  • Special tax treatment of your retirement pay, pension, or annuity

To determine your tax status as a veteran, you can use the IRS Interactive Tax Assistant tool, which will guide you through a series of questions and provide you with the relevant tax information. You can also consult a tax professional or a Veterans Service Organization for assistance.

2. Claim Your Tax-free Income

The second step to claiming your tax breaks for veterans is to claim your tax-free income. This means that you do not have to report certain types of income as taxable income on your tax return, and you do not have to pay taxes on them.

Some of the income sources that are tax-free for veterans are:

  • Disability payments: If you receive disability compensation or pension from the VA, you do not have to include these payments in your income. This applies to both service-connected and non-service-connected disabilities. However, if you receive disability retirement pay from the military, you may have to report some or all of it as taxable income, depending on your situation.
  • Aid and Attendance benefits: If you receive Aid and Attendance benefits from the VA, which are additional payments for veterans who need help with daily living activities, you do not have to include these benefits in your income.
  • Housebound benefits: There is no need to include VA Housebound benefits in your income if you have a permanent disability and you live at home.
  • Grants for home or vehicle modifications: If you receive grants from the VA to modify your home or vehicle to accommodate your disability, you do not have to include these grants in your income. These grants include the Specially Adapted Housing grant, the Special Housing Adaptation grant, the Temporary Residence Adaptation grant, and the Automobile Allowance grant.

To claim your tax-free income, you simply do not report these income sources on your tax return. You do not need to fill out any special forms or attach any documents to prove your eligibility. However, you should keep records of your income and benefits in case the IRS asks for verification.

3. File Amended Tax Returns if Need Be

The third step to claiming your tax breaks for veterans is to file revised tax returns if necessary. If you reported your disability severance payment as taxable income on your tax return after 1991, then this applies to you. For veterans who have diseases or injuries from battle, these payments are tax-free, so you might be able to get a refund of the taxes you just paid on them.

File Form 1040-X, Amended U.S. Individual Income Tax Return, to get your refund. Download the form and instructions from the IRS website. Fill out the form correctly and attach a copy of your Department of Defence or VA disability determination letter. The paperwork must also read “Disability Severance Payment” at the top.

You have up to one year from the date of your disability determination to file your amended return. If you miss this deadline, you may lose your right to claim your refund. Therefore, it is important to act quickly and file your amended return as soon as possible. You can expect to receive your refund within 8 to 12 weeks after you file your amended return.

4. Deduct Your Medical Bills

The fourth step to claiming your tax breaks for veterans is to subtract your medical expenses. This means that you can reduce your taxable income by the amount of your unreimbursed medical expenses that exceed a certain threshold.

To qualify for this deduction, you need to meet the following criteria:

  • You have unreimbursed medical expenses that insurance, the VA, or any other source does not cover
  • Your unreimbursed medical expenses exceed 7.5% of your adjusted gross income (AGI), which is your total income minus certain deductions
  • You itemize your deductions on Schedule A of your tax return, instead of taking the standard deduction

If you meet these criteria, you can deduct your medical expenses for yourself, your spouse, and your dependents. You can deduct expenses such as:

  • Doctor visits, prescriptions, hospital fees, dental care, and more
  • Travel costs to and from medical appointments, such as mileage, parking, tolls, and public transportation
  • Medical equipment, supplies, and devices, such as wheelchairs, crutches, hearing aids, and eyeglasses
  • Long-term care services, such as nursing home fees, home health care, and assisted living
  • Health insurance premiums, if you pay them with after-tax dollars

Medical expense deductions require Schedule A of your tax return and Form 1040 attachment. You must categorize and total your medical bills. Multiply your AGI by 7.5%. Then subtract this from your medical bills to determine your deductible. In Schedule A, enter this amount on line 8.

5.  Take Advantage of Your Education Benefits

The fifth step to claiming your tax breaks for veterans is to take advantage of your education benefits. This means that you can use the GI Bill or other education assistance programs to pay for your education expenses without paying taxes on them.

The GI Bill helps veterans pay for education and training. There are different types of GI Bill benefits, such as the Post-9/11 GI Bill, the Montgomery GI Bill, and the Reserve Educational Assistance Program. Depending on your eligibility, these benefits can cover tuition, fees, books, supplies, and housing at recognized institutions and programs.

Other education assistance programs that are available to veterans include the Vocational Rehabilitation and Employment program, the Survivors’ and Dependents’ Educational Assistance program, and the National Call to Service program. These programs offer various types of support, such as counseling, training, tuition assistance, and stipends, to help veterans achieve their educational and career goals.

If you use any of these programs to pay for your education expenses, you do not have to include these payments as taxable income on your tax return. This means that you can enjoy the benefits of higher education without worrying about the tax implications.

However, there is one catch: You cannot claim college credits or deductions for VA- or other-paid expenses. Education credits and deductions minimize your tax burden for eligible education expenses. Many education credits and deductions include the American Opportunity Credit, Lifetime Learning Credit, and Tuition and Fees Deduction.

These credits and deductions require you to lower your eligible education expenses with any tax-free education aid you receive. Examples include GI Bill payments, scholarships, grants, and employer-provided aid. Otherwise, the IRS may fine you or increase your taxes.

By taking advantage of your education benefits, you can pursue your academic and professional dreams while saving money on your taxes. However, be aware of the rules and limitations that apply to your situation, and avoid claiming any credits or deductions that you are not eligible for.

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Recap

To claim your tax breaks for veterans, identify your tax status as a veteran and what tax breaks you qualify for, claim your tax-free income from disability payments, grants, and other sources, and file amended tax returns if you are entitled to a refund of disability severance taxes, and deduct medical expenses that exceed a certain percentage of your income.

This post is to be used for informational purposes only and does not constitute legal, business, or tax advice. Each person should consult his or her own attorney, business advisor, or tax advisor with respect to matters referenced in this post. . For comprehensive tax, legal or financial advice, always contact a qualified professional in your area. S’witty Kiwi assumes no liability for actions taken in reliance upon the information contained herein.

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