Confused veteran looking at information about his VA disability benefits trying to figure out if they count as income

Does VA Disability Count as Income?

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Veterans who receive VA disability benefits for their service-related injuries and illnesses are not subject to taxes on their benefits.


  • VA disability benefits are classified as “unearned income,” similar to Social Security benefits and lottery winnings, but unlike many forms of unearned income, they are tax-exempt.
  • VA disability benefits are not considered taxable income by federal or state governments.
  • Veterans need to prove eligibility for VA disability benefits, which compensate for service-related injuries rather than for military service itself.
  • However, VA disability benefits qualify as income for certain programs like food stamps and child support.

Understanding the Tax Implications of VA Disability Benefits

If you are in the midst of filing a veterans disability claim or considering pursuing an appeal, you may also be wondering about the financial impact of receiving VA disability come tax season. A common question clients ask our team is “Does VA disability count as income?”

Don’t be deterred from seeking VA disability benefits for your service-related condition because you are worried about them being considered an income source and have to pay taxes on the benefits. Veterans disability benefits are technically tax-exempt.

VA disability benefits can provide you with the financial stability you need to move forward with your life. Our team here at VetLaw is here to help you confront a VA denial and respond with a successful appeal.

With our skilled veterans disability benefits denial lawyers on your side, rest assured that we will cover your needs. You can schedule a free consultation with a knowledgeable, VA-accredited VetLaw attorney by calling us at (855) 561-1330 or filling out a contact form today.

VA Disability Benefits Are Technically Unearned Income

If you received money from another individual, institution, or source, but you did not work for it, that is “unearned income”. Along with VA disability benefits, lottery winnings, inherited money from a relative, and Social Security benefits are all unearned income. VA disability benefits are tax-exempt, but not all types of unearned income are.

Some veterans have difficulty with the idea that their VA disability benefits are classified this way, but calling them “unearned” does not mean that the benefits are undeserved or illegitimate. In this context, VA disability is not something you earn by serving in the military, but rather something you are entitled to because you served in the military. 

Remember, strictly speaking, VA disability does not compensate you for your military service. Instead, it compensates you for costs associated with your service-related injuries. To access these benefits, you simply have to prove you meet the eligibility criteria for VA disability benefits.

The Government Considers VA Disability a Tax-Free Benefit for Qualified Veterans

As referenced earlier, VA disability benefits are a special type of unearned income. Unlike the interest you accrue on your savings account, assets passed down to you, or most other forms of unearned income, veterans do not have to pay federal income tax on their VA disability benefits. 

Exclude it from your gross income when you are reporting your earnings to the IRS. For the federal government’s purposes, VA disability doesn’t count as income. The same goes for the state level, even if your state collects an income tax. This tax-exempt status applies to all VA disability benefits. Examples of special VA disability benefits include:

  • Automobile allowance to purchase or renovate your vehicle to accommodate your disability
  • Total Disability due to Individual Unemployability to replace wages
  • Clothing allowance to replace items torn or stained because of specific service-related disabilities
  • Convalescence while you recover from a treatment for a service-related illness or injury in a medical facility

When Does VA Disability Count as Income for Veterans?

Most veterans care about whether their VA disability compensation qualifies as a source of income because of the implications for their taxes. However, there are other situations where it matters if your VA disability is considered income or not.

The following are examples of cases where the government classifies VA disability benefits as income for a veteran:

  • Food stamps/SNAP benefits
  • Child support
  • Alimony/spousal support
  • Medicare approved Drug Discount cards

Keep in mind that your eligibility for certain programs may be impacted by your VA disability benefits income. Also note that if your service-related disability has worsened and is preventing you from working or caring for yourself and your family, you may need an updated VA disability rating to accurately reflect your current status.

Discuss Your Veteran Disability Claim With the Best Team for the Job

If you are a veteran with a service-connected health condition, you can pursue the compensation you qualify for without worrying about whether VA disability counts as income, and our team can help you do it. At VetLaw, we are backed by years of experience and strong recommendations from former clients.

As accomplished advocates, recognize that the VA appeals process can be exceptionally stressful for veterans. Our veteran disability claims attorneys will dedicate our time, attention, and resources to obtaining your VA disability benefits for your service-related mental or physical condition.

You can trust us to diligently pursue the best possible outcome for your veterans disability benefits claim. Our hard-working team of veterans disability appeals lawyers will not take your trust for granted. We encourage you to reach out to us at (855) 561-1330 or complete a contact form today to schedule a free consultation. 

Frequently Asked Questions

What other types of VA benefits are tax-exempt?

VA disability benefits are not the only form of compensation that holds a tax-free status. For example, veterans do not have to pay taxes on pension benefits, grants to remodel a home to make it accessible, and education benefits.

Are VA disability benefits paid to a veteran’s family members also non-taxable income?

Generally, VA disability benefits are tax-free, regardless of who they go to. For example, two of the main types of VA disability benefits family members of veterans receive are also tax-free. Dependency and Indemnity Compensation (DIC), or survivor’s benefits, as well as Aid and Assistance benefits, are not subject to taxes.

Is my military retirement taxable income?

Military retirement pay, which is not the same thing as VA disability benefits, is a part of your taxable income. It should be reported as such to the federal government. Note that these payments are not based on a service-related disability, but rather on your age or how long you served in the military.