Tax Benefits
VA Disability Compensation — Tax Free
VA disability compensation payments are completely exempt from federal and state income taxes.
Who qualifies: Veterans, Veterans with a service-connected disability.
VA disability compensation is 100% tax-free at both the federal and state level:
• Not reported as income on your federal tax return
• Not subject to state income taxes
• Does not affect Social Security benefit calculations
• Does not count as income for FAFSA purposes (generally)
This makes VA disability compensation one of the most tax-efficient forms of income available.