Everything you need to know about Taxability of Veteran’s Benefits in the United States

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What are Veteran’s Benefits?

The U.S. Department of Veterans Affairs provides benefits to veterans and their dependents, including those who may not have served in the military.

A veteran is someone who has served in the United States Armed Forces, whether as a member of the Regular Forces or as a member of a Reserve Component (National Guard or Reserves). The term “veteran” does not include an individual serving on active duty for training purposes only; or one who has been discharged from service for reasons other than dishonorable; or one who has been found to be mentally incompetent by a court, board, commission, or other lawful authority.

The VA provides many benefits to veterans and their dependents including education assistance, home loans, life insurance, vocational rehabilitation and employment assistance, medical care for conditions that existed prior to military service or were aggravated by military service and burial in national cemeteries.

What is Nontaxable Compensation for Military Personnel?

Military personnel are generally exempt from income tax on the pay they receive for their services, but not always. The amount of pay that is nontaxable depends on the type of pay and the status of the service member.

The following types of military compensation are not taxable:

  • Basic Pay (including Basic Allowance for Housing)
  • Basic Allowance for Subsistence
  • Combat Pay
  • Disability Compensation
  • Leave Pay
  • Overseas Differential Pay
  • Hazardous Duty Incentive Pay
  • Imminent Danger Pay
  • Foreign Language Proficiency Bonus

What is Excludable Military Pay?

Excludable military pay is any amount of pay that does not count as income for the purpose of determining eligibility for federal benefits.

Military members are paid in two different ways: basic pay and allowances. Basic pay is a fixed amount that gets paid every month and is taxable. Allowances are not fixed amounts but can be received on a monthly or yearly basis and they are typically tax-free.

Excludable military pay includes basic pay, allowances, retirement, disability compensation, death gratuity payments and some other types of money received from the Department of Defense. Income includes any type of payment a person receives from an employer or other source such as wages, salary, commissions, bonuses, tips etc., but excludes excludable military pay.

How Much Comes Out of Military Basic Pay Before Taxes?

Military basic pay is the amount that a member of the military receives before taxes. The military pays its members two different kinds of basic pay: Basic Allowance for Housing (BAH) and Basic Allowance for Subsistence (BAS).

The military pays its members two different kinds of basic pay: Basic Allowance for Housing (BAH) and Basic Allowance for Subsistence (BAS). BAH is a monthly allowance given to enlisted members who live off base. BAS is an allowance paid to enlisted members who live in government housing on base or in government housing off base.

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