It’s a great time to recognize those who served or are serving our country in the armed services as America celebrates Veteran’s Day in just a few weeks.
The country’s appreciation is shown in the financial and tax benefits available to active-duty military personnel and veterans. These are just a few. You can find many more at the Veterans Benefit Administration.
Veterans and military personnel with qualifying service can apply for VA home loans. These loans offer mortgages with benefits that aren’t available to conventional borrowers. VA mortgages offer a variety of unique benefits that are specifically tailored to veterans and eligible borrowers. The most notable feature is the ability to obtain a mortgage without a down payment or private mortgage insurance (PMI). This is in contrast to conventional loans which require PMI, which can be expensive for borrowers who have not put down at least 20%.
A VA loan has other benefits, such as a lower closing cost, no penalties for early repayment, and the ability to transfer the loan. This can be a great way to sell your house.
Sometimes, veterans’ pay is exempt from tax. Disabled vets might be eligible for a federal refund on the Combat Related Special Compensation or disability pay they receive from Department of Veterans Affairs. A disabled vet must file Form 1040X to amend the tax return that had included special pay in order to claim the federal refund.
Additionally, veterans receiving disability benefits from VA are exempted from tax and should not be included in gross income. This includes several payments, such as disability compensation and pension payments to disabled veterans and their families.
Other disability-related payments, like grants for home modifications to accommodate wheelchair-bound living, modifications to motor vehicles for veterans who have lost their limbs, and benefits for dependent care assistance, are exempt from tax.
The Combat Injured Veterans Tax Fairness Act was enacted in 2017. Veterans who have suffered combat injuries and are not separated from the military are exempted from tax on any lump-sum disability severance payments they receive. The law requires that the Department of Defense contact veterans who have been taxed on these payments in order to assist them with filing amended tax returns or claiming a refund.
Through a program administered by the Consumer Financial Protection Bureau, Office of Servicemember Affairs, veterans can receive free financial coaching. Financial Coaching Initiative (AFSC) is a program that helps veterans achieve their financial goals. It provides personalized financial support services.
Members of the military have a number of tax deductions that are unique. These are described in Publication 3 – Armed Forces Tax Guide. These include:
The pay that active-duty military receives includes basic, special, combat zone, or hazardous-duty pay as well as allowances for living and moving. While some of these types are included in their taxable income they are not taxed on other types. These are just a few examples of types of pay that are usually provided as an additional allowance and are therefore exempt from tax.
If a member or a family member is killed in combat or suffers injuries during military or terrorist actions, then the tax liability of the deceased person in the year of his death or in any prior years can be forgiven. The tax that was forgiven will not have to be paid.
When filing a tax return for a loved one who has died, the survivor should include the name of the military action or KIA. For example, “Desert Storm – KIA” or “KITA”, if the deceased was killed in a terrorist attack. The IRS will receive the return and determine the amount of tax that should be forgiven or, if it has been paid, will refund it.
