Nontaxable Veterans Benefits

By Paul Bright

Military veterans who serve our country during peacetime or war are eligible to receive special benefits upon discharge or retirement. These benefits include help for education, compensation for disabilities incurred while serving and survivor's benefits. Although these monies can greatly vary dependent upon qualification, they all have an added advantage in being nontaxable.

How one qualifies as a veteran can affect benefits. Military members who have served at least 90 days after September 11, 2001 can qualify to receive the Post 9/11 G.I. Bill benefits, while anyone who served at least three days after enlistment and was injured could qualify for service-connected disability compensation. See the Veterans Benefits List in Resources.

Education benefits such as the Montgomery G.I. Bill or Post 9/11 G.I. Bill are not subject to tax. Montgomery G.I. Bill enrollees who attend qualifying schools directly receive a monthly payment to cover tuition costs for up to 33 months of classes. The amount is dependent upon the number of credit hours taken. Post-9/11 recipients have amounts paid directly to the school that are no greater than the highest public undergraduate school tuition in the attending school's state. However, veterans attending full-time also receive $1,000 per year to cover the cost of books.

Service-connected disabilities as qualified by the Veterans Administration are also nontaxable payments. These payments are based upon the VA's rating and the veteran's dependents. For example, a 20 percent rating under the 2009 payment scale pays $243 per month to the veteran, while a veteran with one child and a 30 percent rating would receive $406 per month. These amounts also increase every year for inflation adjustment.

Special nontaxable grants can be given to veterans with special disabilities. An example would be a grant to make a home wheelchair accessible for a veteran who loses his legs during service. Vocational rehabilitation programs may also offer grants to veterans who must re-train to work in career fields other than the one they did during service. These grants can help pay tuition and training costs as well as costs for special equipment.

Military retirees count as veterans. Although retirement pay free of disability payments is taxable, moneys received from the Survival Benefit Plan is not, according to the Defense Finance and Accountability website. The Survival Benefit Plan is a plan in which retirees can set aside money from their retirement pay that will go to qualifying surviving spouses or children upon the member's death. The surviving members would receive up to 55 percent of the retired pay's base amount. That amount can increase over time since it is adjusted for inflation.

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