Don’t Miss Out on These Sweet Tax Breaks for Veterans in 2023!
Tax breaks are one of the more overlooked slices of the veteran’s benefits pie. Sure, it may not be the star of the show, but that slice of pie (or cake, if you prefer) can be pretty darn tasty and filling, and it’s included with your meal!
Likewise, tax breaks may not be the most glamorous of benefits, but they can help veterans save money and reduce their tax liability. Plus, who doesn’t love saving money on taxes? So, let’s give tax breaks the credit they deserve and not overlook this tasty slice of the veterans’ benefits pie.
We start with an overview of which veterans’ benefits are taxable and which are tax-free. Then we look at specific tax breaks for veterans, including disabled veterans, retirees, veterans who own a home, and veterans who are pursuing a degree. Let’s dive into it, shall we?
Covered in this article:
- VA Disability Compensation
- Military Retirement Pay
- Tax Refund for Combat Related Special Compensation (CRSC)
- Tax Refund for Increase in Disability Rating
- State Property Tax Breaks
- Military Spouse Residency Relief Act (MSRRA)
- Post 9/11 GI Bill
- The American Opportunity Tax Credit
- Lifetime Learning Credit
- VA Home Loan Program
Overview of Taxable and Non-Taxable Benefits for Veterans
1. VA Disability Compensation
VA disability compensation is not taxed. This includes disability compensation payments, disability grants for home or vehicle modifications (such as wheelchair ramps), and benefits under Aid and Attendance, a popular dependent-care assistance program.
2. Military Retirement Pay
Military retirement pay is taxed by the federal government. However, it’s worth noting that your retirement pay is not counted as earned income for Social Security tax purposes.
At the state level, most states offer some form of tax break for military retirement pay. As of 2023, 34 states either don’t tax military retirement pay or don’t collect income tax at all.
States That Don’t Tax Military Retirement Pay
- New Jersey
- New York
- North Carolina
- North Dakota
- South Dakota
Some states have more complicated guidelines, with partial tax breaks based on age, disability, and other factors. These provisions frequently change, so we advise you to work with a tax professional to make sure you’re working off the latest rules.
Can You Receive VA Disability and Military Retirement Pay at the Same Time?
Wondering if you can receive va disability and military retirement pay without taking a hit? Learn if you qualify for two key programs: CRDP and CRSC. Read more >>
VA Disability Benefits
We turn now to some rarely talked about ways disabled veterans can maximize their tax benefits.
3. Tax Refund for Combat Related Special Compensation (CRSC)
Were you recently approved for Combat-Related Special Compensation? You may be eligible for a tax refund. To get the tax refund you would need to file an amended tax return for the year you were approved. We strongly recommend working with a tax professional on this. Let’s take a brief look at how CRSC works and how it is taxed.
Veterans who are eligible for Combat Related Special Compensation (CRSC) get back the amount of their military retirement pay that was reduced by the amount of their VA disability compensation. Technically, your military retirement pay continues to be reduced by the amount of your VA disability pay, but you get a reimbursement check each month from your branch of service. The best thing about CRSC is that your restored retirement pay isn’t taxed.
If you don’t think you’d be eligible for CRSC, it’s worth a second look. You don’t need a Purple Heart to qualify for CRSC. If you were exposed to Agent Orange in the Vietnam era or burn pits in the post-9/11 wars and it made you sick, you are likely eligible for CRSC under the “instrumentality of war” clause.
A note about the difference between CRSC and CRDP:
A veteran with a disability rated at 50% or higher automatically gets their full military retirement pay without any offsets. In the VA world, this is known as Concurrent Retirement and Disability Pay, or CRDP. A veteran with a disability rated at lower than 50% should apply for CRSC or look into the possibility of appealing for a higher disability rating. We’ve written in depth about maximizing your VA Disability and Military Retirement Pay, so be sure to check that out.
4. Tax Refund for Increase in Disability Rating
If you recently got an increase in your disability rating, you may be eligible for a tax refund. Again, we strongly recommend working with a tax professional on filing your amended tax return.
Need help increasing your disability rating? That’s where we come in. The experienced, VA-accredited claims agent at The Rep For Vets can help you appeal for an increased rating if your disability has worsened or your rating was too low to begin with. Give us a call today at (888) 573-7838. You can also fill out a quick form to get the ball rolling.
Property Tax Benefits
5. State Property Tax Breaks
Property tax breaks save veterans thousands of dollars each year. There are as many property tax exemptions as there are states in the union. Some have eligibility requirements based on disability rating, age, and era of service, and more.
Exemptions range from $700 (Kansas) to $300,000 (Minnesota). Georgia, a state with one of the largest veteran populations in the country, gives 100% disabled veterans a property tax exemption up to $50,000. Florida, another veteran-heavy state, offers veterans with at least a 10% disability rating a $5,000 deduction on the assessment of their home for tax purposes, while veterans with a 100% disability rating receive a full property tax exemption.
States That Exempt Veterans From Property Taxes
These 18 states fully exempt 100% disabled veterans from paying property taxes as of 2023.
- New Hampshire
- New Jersey
- New Mexico
- South Carolina
The details on other types of state exemptions are more complex and varied than we have space to summarize here. Jump to the Appendix for a full breakdown on State Tax Breaks for Veterans to learn what’s available in your state.
6. Military Spouse Residency Relief Act (MSRRA)
The Military Spouse Residency Relief Act (MSRRA) could reduce your state income tax liability if you and your spouse moved from a state with no or low income tax to a state with higher income tax. It also makes it easier for service members and their spouses to file jointly.
Here’s how it works. MSRRA allows the spouse of a servicemember to keep their legal residency for tax purposes when their partner moves under military orders. This could help you reduce your tax liability if, for example, you lived in Florida before relocating to a base in California.
Before MSRRA, service members and their spouses often had to fill out multiple tax forms and sometimes file as “married filing separately”. MSRRA streamlines the filing process by letting both the service member and the spouse keep the same state of residency even after relocating. Tax accountants love this program!
This group of benefits mostly applies to post 9/11 veterans, but the tax credits we discuss below apply to veteran trainees and students of all ages.
7. Post 9/11 GI Bill
The Post 9/11 GI Bill helps veterans who enlisted after September 10, 2001 cover the costs of tuition, housing, books and supplies. For veterans pursuing higher education or career development programs, these tax-free benefits can cover up to three years of study.
Tuition is paid directly to the school or university. The payment rate depends on how long you served, with a minimum of 90 consecutive days (or 30 days if you were discharged with a service-connected disability) on active duty.
The Post 9/11 GI Bill also provides a monthly housing stipend paid directly to you, also tax-free. (If you’re taking online classes, you can still receive the housing stipend at half the national average.) As with tuition payments, the amount you receive depends on how long you served.
If you need to relocate to attend classes, the Post 9/11 GI Bill also covers one-time relocation costs. Finally, the Yellow Ribbon Program exists to help cover the cost of tuition that goes beyond what the Post 9/11 GI Bill covers.
Now let’s take a look at the tax credits.
8. The American Opportunity Tax Credit
This tax credit can help make higher education more affordable by reducing your taxable income. You can claim a maximum annual credit of $2,500, subject to income limitations.
9. Lifetime Learning Credit
Like the American Opportunity Tax Credit but for graduate studies, the Lifetime Learning Credit reduces the taxable income of veterans pursuing advanced training programs.
This credit reduces your tax bill on a dollar-for-dollar basis for a portion of the tuition, fees and other qualifying expenses you or a spouse or dependent paid out of pocket for grad school.
Home Loan Benefits
We’d be remiss if we didn’t talk about home loan benefits available to veterans. It won’t save you any money on your taxes this year, but it’s good to know about if you’re looking to buy a home soon.
10. VA Home Loan Program
With interest rates having doubled in recent years, the VA Home Loan program is more important than ever. This program helps veterans buy or refinance a home at a lower interest rate than would otherwise be available to them. The program doesn’t provide the loan itself, but rather guarantees a portion of the loan made by a private lender.
The VA has a list of VA-approved lenders on their website, but it doesn’t seem to be up to date or comprehensive. We recommend asking your real estate agent or mortgage broker for their recommendations.
Good news for veterans looking to take advantage of the VA Loan Program in 2023: The VA just announced it reduced their upfront VA Funding Fee. That reduction lowers the down payment and closing costs for veterans who qualify. Veterans who receive VA disability are already exempt from the VA Funding Fee cost.
Get a Bigger Slice of the Pie
Here at the Rep For Vets, we don’t like the idea of veterans leaving anything on the table when it comes to benefits. We do everything in our power to ensure veterans get all the benefits they earned when they signed up to serve.
Our VA-accredited claims agents have helped veterans across the United States navigate the claims process and get the right amount of benefits for their situation. We can help you understand how all this stuff works, and make sure you’re getting fairly compensated.
To schedule a free consultation, give us a call at 1-888-573-7838, or fill out this quick form to get started. We look forward to hearing your story and helping out in any way we can.
Frequently Asked Questions
Do disabled veterans pay property taxes?
Nearly every state offers some form of a property tax break for disabled veterans. Some states offer full property tax exemptions up to certain dollar amounts for disabled veterans. Others offer partial tax breaks based on disability, age, and other factors. State property tax exemptions for veterans are complicated and frequently change, so we advise you to work with a tax professional to make sure you’re working off the latest rules.
Do 100 disabled veterans have to pay federal taxes?
“Nothing is certain except death and taxes”. This famous quote, attributed to Ben Franklin over 200 years ago, still rings true.
Yes, disabled veterans must file taxes like everyone else. However, there are several benefits available to disabled veterans that are not subject to taxation. They are:
- VA Disability Comepnsation – this includes
- Combat Related Special Compensation
- Grants to make your home or vehicle wheelchair-accessible
- Benefits received under VA dependent-care assistance program.
Do companies get tax breaks for hiring disabled veterans?
Yes, companies can get tax breaks for hiring disabled veterans. The WOTC (Work Opportunity Tax Credit) is a government program that provides tax credits to companies that hire people from certain groups, including disabled veterans. It’s designed to incentivize companies to hire disabled veterans and support their transition back into civilian life while reducing the company’s tax burden, a win-win.
Here’s how it works: if a company hires a disabled veteran who meets certain criteria, they can claim a tax credit that reduces their federal tax liability. The amount of the tax credit varies depending on the wages paid to the veteran and the number of hours they work.
For the company to qualify for the tax credit, the disabled veteran must have served on active duty in the U.S. Armed Forces and have a service-connected disability. Additionally, the veteran must be hired within one year of being discharged or released from active duty.
More info here: Work Opportunity Tax Credits for employers who hire veterans.
Where can veterans get help filing their taxes?
Military service members, including veterans, are eligible to receive free tax consultation and preparation at Volunteer Income Tax Assistance locations.
Find the VITA program site nearest you. If you don’t find an installation location in this list, VITA locations may be available in another community in your state.
Additionally, TurboTax offer free filing for active duty service members.
State Tax Breaks for Disabled Veterans
The table below was created with veteran volunteer labor over on Reddit and is current as of the 2022-23 tax year. Follow the links in the Reference column for official documentation on each state’s exemption policies. As always, it’s much better to consult with a tax professional than trying to do it yourself. This is here to give you an overview of what may be available in your state.
|State||Partial Exemption||Full Exemption||Details||Reference|
|Alabama||Vet||PT||Vet: Home (not the land) are exempt from all ad valorem taxation. PT: Home and up to 160 acres.||Vet Title 40|
|Alaska||≥50%||–||Up to $150,000 exemption.||Alaska|
|Arkansas||–||Other, PT, TDIU||Other: Are service connected for loss of at least one limb, or service connected for total blindness in at least one eye.||AR Code 26-3-306 TDIU|
|California||100%, TDIU, Vet||–||Up to $149,000+ exemption. Low income qualifies for a higher exemption.||Vet 100%|
|Colorado||PT||–||50% off the first $200,000.||CDT|
|Connecticut||Vet||–||Vet: $1,500 exemption. Disabled veterans are entitled to a higher exemption.||CT|
|Florida||≥10%||PT||Partial exemption: $5,000 exemption.||FS 196.081(1) FS 196.24|
|Georgia||Other, TDIU, PT||–||$100,896 exemption. Other: Are service connected for loss of at least one limb, or service connected for total blindness in at least one eye.||O.C.G.A. § 48-5-48|
|Hawaii||–||100%, TDIU||Only Hawaii County includes TDIU. ALL counties do have up to $150 in minimum property tax.||Hawaii Honolulu Kauai Maui|
|Idaho||≥10%, POW||–||≥10, POW: Up to $1,500 tax reduction. 100% Veterans have no income limit consideration.||≥10%, POW 100%|
|Illinois||≥30%||≥70%||30-40% $2,500; 50-60% $5,000; Property MUST be valued under $250,000 EAV.||35 ILCS 200/15-169|
|Indiana||(≥10%, Vet), 100%, NSC||–||100%, NSC: $14,000; (≥10%, Vet): $24,960.|
|Iowa||Vet||PT, TDIU||Partial exemption rates vary.||Iowa|
|Kansas||≥50%||–||Maximum refund of $700. Has income and other limits.||KDR|
|Louisiana||100%, TDIU||–||$15,000 exemption.||7 21|
|Maine||100%, NSC, Vet||–||$6,000 exemption. Paraplegics: $50,0000 exemption.||Maine|
|Maryland||–||PT, TDIU||Also has County level exemptions.||Maryland Dept. of VA County|
|Massachusetts||≥10%, PH, POW||Other||Partial: Varies; Other: Paraplegic or rated 100% for blindness.||M.G.L. ch. 59, s.5, clause 22|
|Michigan||–||PT, TDIU||–||MCL 211.7b|
|Minnesota||≥70%||–||$150,000 for ≥70%; $300,000 exemption for PT.||MN|
|Missouri||100%||(100%, POW)||$750 for renters and $1,100 credit for owners. Income limits do apply.||POW Partial|
|Montana||100%||100%||Exemption varies by income.||15-6-311, MCA|
|Nebraska||100%, NSC||100%, NSC||Income levels determine percentage of exemption.||NHE|
|Nevada||Vet, ≥60%||–||Vet: $2,000; ≥60% Varies.||Vet ≥60%|
|New Hampshire||Vet, PT||PT**||Varies.||Vet PT PT**|
|New Jersey||Vet||PT||Vet: Deduction of $250 from property taxes.||Vet PT|
|New Mexico||Vet||100%||Vet: $4,000 exemption.||Vet 100%|
|New York||Vet||–||It is complicated.||Vet|
|North Carolina||Other, PT||–||$45,000 exemption. Other: Used a Specially Adapted Housing benefit.||G.S. 105-277.1C|
|North Dakota||≥50%, TDIU||–||≥50%, TDIU: $8,100 tax credit; Paraplegic: $120,000 exemption.||ND|
|Ohio||100%||–||$25,000 exemption, has income restrictions.||OH|
|Oregon||≥40%||–||$28,886 exemption. Increases 3% each year.||OR|
|Pennsylvania||–||100%||Income limits apply.||Pen|
|Rhode Island||≥0%, Vet||–||Varies.||RI|
|South Carolina||–||POW. PT||–||SC|
|South Dakota||PT||Vet||PT:$150,000 exemption; Vet: Must be a paraplegic.||PT Vet|
|Texas||≥10%||100%||≥10%: Varies.||100% ≥10%|
|Utah||≥10%||–||Exemption up to $275,699.||UC 59-2-1104 & 1105|
|Vermont||≥40%||–||Varies between $10,000-40,000.||32 VSA § 3802 11|
|Washington||≥80%, TDIU||–||Income limits apply. Up to $60,000 OR 60% of the assessed taxable value, whichever is greater.||WA|
|West Virginia||PT||–||$20,000 exemption.||WV|
|Wisconsin||–||100%, TDIU||Veteran must have entered service in WI or lived there for 5 continuous years.||s.71.07 6e|
|Wyoming||Vet, ≥10%||–||$3,000 exemption. Must be a resident for at least 3 years.||W.S. 39-13-105|