Active duty service members work overtime to safeguard our freedoms at an incalculable cost to their personal lives. From missed milestones (like first steps and birthdays) to abrupt relocations, military family life has become synonymous with sacrifice.
This sacrifice often takes the form of extended deployments to distant, war-torn regions of the world. Here, the stakes are high; the costs, steep. One unlucky move could result in loss of limb or loss of life.
In recognition of the tremendous sacrifices we call upon our veterans to make, the IRS has responded by awarding the following tax breaks to U.S. veterans. Keep browsing for an easy-to- follow guide on tax savings for U.S. veterans!
1. Tax-Free Pensions for Elderly & Disabled Veterans
Did you know that the Veterans Administration (VA) offers pension plans to elderly and disabled veterans—even if the disabling event occurred outside of active duty?
A pension plan is a work-sponsored retirement program that requires employers to pay monthly support to former workers upon retirement. Once a popular source of retirement income, pension plans are now uncommon in the private sector.
However, the VA awards disability pensions to elderly and disabled veterans who meet the following criteria:
- Senior status (Age 65 or older)
- Unemployed or under-employed due to a permanent disability
- Completed at least 90 days of active duty, including one day of combat service
- Residents of nursing facilities
- Recipients of Social Security Disability Insurance (SSDI) or Supplemental Security
The key takeaway for your taxes? The IRS categorizes disability pensions as untaxable income. Therefore, any income obtained from your pension won’t count as an income source during your federal and state tax returns. Moreover, these funds can amount to hefty savings when you need them the most—during the leaner months of your retirement.
2. VA Disability Compensation for Former Service Members
Now, let’s discuss former service members who suffered permanent disabilities in the line of duty. (This includes individuals with pre-existing conditions that worsened during their service period.)
These individuals may qualify for monthly tax-free disability compensation from the VA. Examples of “service-connected disabilities” covered by these benefits include:
- Loss of vision or hearing
- Amputation or limb paralysis
- Spinal cord injuries
- Traumatic brain injuries
- Third-degree burns
- Cancers caused by exposure to radioactive or toxic materials
- Qualifying chronic illnesses
- Post-traumatic stress disorder (PTSD)
- Severe anxiety or depression
- Military sexual trauma
For a comprehensive list of eligible conditions, please review the disability compensation criteria published by the U.S. Department of Veterans Affairs.
Individuals who qualify will receive a disability rating of 0-100% from the VA. The VA then calculates the amount of monthly disability compensation from this rating and the veteran’s number of dependents.
For example, a 60% disabled veteran with a spouse and child may receive up to $1,328.39 per month in disability compensation. In contrast, a 30% disabled veteran without any dependents may only receive $441.35 in monthly payments. More importantly, however, all of this additional income is considered tax-free.
To more accurately estimate your compensation rates, please visit veteransunited.com.
3. Tax-Exempt Housing Grants for Disabled Veterans
Veterans who qualify for disability compensation may also be entitled to receive a Specially Adapted Housing (SAH) grant. An SAH grant allows individuals with service-connected disabilities to purchase a new (or remodel an existing) home with adaptive modifications.
For example, a disabled veteran with monoplegia could use these funds to make their home wheelchair or crutch accessible.
For the 2021 tax year, disabled veterans can receive up to $100,896 in SAH funds—all of which are nontaxable.
4. Tax-Free Benefits for Survivors
If you lost a loved one to military service, then you may qualify for a variety of spousal and child support programs. Moreover, many of these services are exempt from federal and state taxes. Examples of tax-free benefits for survivors include:
- Survivors Pension Benefit: You may qualify for this tax-free form of financial assistance if:
- You’re the spouse or child of a recently deceased veteran who completed combat service.
- Your net worth (including your primary residence, car, and assets) falls below the designated threshold. In 2021, the VA has established the net worth limit to qualify for the Survivors Pension at & < $130,773.
- Death gratuity: This one-time payment of $100,000 relieves the financial burden assumed by family members upon the death of a service member. This covers casualties that occurred during:
- Active duty
- Reserve duty
- ROTC training
- Authorized travel
- Tax-free healthcare benefits, including emotional support, dental coverage, and more
- Tax-free tuition assistance for undergraduate and certificate coursework under the Survivors ‘and Dependents’ Educational Assistance Program
- Access to Family Survivors’ Group Life Insurance, Basic Allowance for Housing (BAH), burial assistance, and more
5. The Compensated Work Therapy (CWT) Program
Many veterans struggle to reacclimate to civilian life after serving in the military. Consider the following statistics:
- Although veterans account for 6% of the US population, 8% of homeless individuals identify as veterans.
- 23% of female veterans report suffering sexual assault during their time of service.
- In 2008, 13.8% of sampled veterans who served in Afghanistan and Iraq had received an official PTSD diagnosis.
- 25% of sampled veterans reported abusing alcohol in the 4 months following deployment.
Accordingly, the Compensated Work Therapy (CWT) program counteracts these challenges by equipping veterans with the resources they need to obtain gainful employment. Under the CWT, unemployed veterans belonging to high-risk groups can receive intensive supports, including:
- Incentive therapy: Guided, non-competitive employment in a therapeutic setting with a case manager and team of support individuals
- Sheltered workshops: Six months of paid skill-building in an isolated environment with other veterans
- Transitional work: Supervised non-competitive work at an affiliated employment site, often sponsored by a vocational rehabilitation program
- Supported employment: Competitive employment with appropriate modifications, such as on-site job training
Not only do these supports allow veterans to break the cycle of unemployment, but the income obtained from these programs is considered non-taxable. When end-of-the-year taxes roll around, this can make a HUGE difference in your refund.
6. Tax-Exempt Education Benefits for Veterans
Even if you’re not in the military, you’ve probably heard of the Post-9/11 GI Bill. The GI Bill enables honorably discharged veterans with at least 90 days of active duty service to pursue higher education.
Wondering how much money you may qualify for? The Post-9/11 GI Bill uses a tiered approach.
Here’s how this works in practice. If you’ve served at least 18 months of active duty service but less than 24 months, you qualify for a 70% reduction in your tuition costs and fees payable. (To review the full table of benefit tiers, click here.) This means that your GI Bill would pay $7000 of a $10,000 tuition bill from an accredited institution!
Moreover, funds received from the GI Bill do not need to be added to your annual income when calculating taxes. This means shaving thousands of dollars off of your taxable income!
7. New Jersey State Tax Exemptions for Veterans
Veterans should be happy to claim the Garden State as their home.
Were you honorably discharged from the military before the end of the previous tax year? If so, then you may receive a $6,000 exemption on your NJ state income taxes. Likewise, your spouse can also claim this exemption if he or she qualifies as a veteran.
Are you a veteran with a service-connected, 100% disability rating? If so, then the state of New Jersey refrains from assessing real estate taxes on your primary residence. However, in order to claim this state tax exemption, you must first submit the following form.
And, finally, did you know that NJ is one of only 22 states that doesn’t tax military retirement pay? At the end of the year, this can translate into a significant source of tax savings!
Steven Lissner & Company Supports Our Veterans!
As you can see, tax exemptions for veterans are exceedingly complex—and we’ve only just begun to scratch the surface!
To ensure that you receive the full refund that you deserve, enlist the expertise of a certified public accountant who can boast a proven track record of supporting our veterans.
At Steven Lissner & Company, our tax experts offer specialty tax preparation services for veterans and active duty service members. Our accountants will leave no stone unturned when analyzing your finances for hidden opportunities to save BIG on end-of-year taxes.
With 30 years of experience under our belts, we know the tricks of the trade to secure your biggest refund yet.
In the military, stakes are high. The same is true of your taxes. Don’t make a costly mistake by relying on big-name, automated tax services to calculate your refund. Instead, contact one of our tax preparation experts today and enjoy the following benefits:
- Personalized service and expert up-to-the-minute guidance
- Discovery of oft-overlooked deductions and credits
- Meticulous record-keeping and opportunities to plan for the future
- Avoidance of costly mistakes
- Audit support and protection
- Less frustration and wasted time spent googling obscure tax terms
- Responsive and friendly service that you can access year-round
It’s never too early (or too late) to start maximizing your tax refund. Contact our team of tax specialists today to set up a consultation!