Do I Need to Claim VA Benefits on My Tax Return?
In 1930, Congress established the Veterans Administration to administer benefits to veterans and their families. Now known as the Department of Veterans Affairs, the agency administers health benefits, pension and retirement benefits, disability benefits, home loan programs and life insurance benefits. The Internal Revenue Service does not require veterans to claim their VA benefits and report them as income. VA benefits are exempt from income taxes, according to the United States Code.
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Overview
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Unless Congress specifically excludes a specific source of income from taxation, Section 61 of the Internal Revenue Code states that taxpayers are required to report income from all sources. Section 134(a) of the Internal Revenue Code specifically excludes qualified military benefits as taxable income. Generally, all income and benefits received under any VA law are exempt from the Section 61 definition of "gross income." As such, if you receive VA benefits, you do not have to claim your benefits as income on your tax returns.
Permissible Filing
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Benefits of any kind received from the VA, including pension benefits, health insurance, life insurance proceeds and disability income, are not income, according to the IRS. Because VA benefits are not taxable income, you do not have to claim them on your annual 1040 tax returns. Although you are not required to report your VA benefits, you may have to report them to take advantage of special tax incentives or credit programs. For example, in 2008, Congress authorized economic stimulus payments for eligible taxpayers. The IRS sent economic stimulus checks to qualified taxpayers with earned income and net tax liabilities.
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Stimulus Payments
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To help veterans, Social Security retirement recipients and retired civil servants receiving Railroad Retirement benefits, Congress provided an exception for them to qualify for the stimulus program without taxable income. However, to qualify for the program, you must have filed your tax returns in 2007. To further assist veterans in combat zones, Congress provided them with an automatic extension to file their returns. If you did not file a tax return, you did not receive a stimulus check.
Statute of Limitations
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To streamline the process for veterans and retirees, the IRS did not require you to file a full tax return, and you were only required to complete a small section of Forms 1040 or 1040-EZ. Furthermore, if you did not file your tax returns in 2007, you generally have three years to file them and claim a refund. If you filed your tax returns but did not report any VA income, you have up to three years to amend your tax returns and claim a refund for overlooked credits by filing IRS Form 1040X.
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References
- IRS.gov: Publication 907 - Tax Highlights for Persons with Disabilities
- IRS.gov: Certain Payments to Disabled Veterans Ruled Tax-Free; Some May Be Due Refunds
- IRS.gov: Rev. Rul. 2007-69
- IRS.gov: Publication 3 - Armed Forces Tax Guide
- IRS.gov: 2011 Edition, Federal Benefits for Veterans, Dependents and Survivors
- IRS.gov: Economic Stimulus Payment Q&As: Eligibility
