The U.S. Department of Veterans Affairs provides compensation to veterans who became disabled while actively serving in the military, as well as wartime veterans who live on limited income. If you earn income from either of these sources, the Internal Revenue Service won't withhold or levy federal taxes from your check.
About VA Income
The VA awards two primary types of benefits: VA disability compensation and VA pensions. The VA awards VA disability compensation to veterans who sustained injuries or became disabled while they were serving in the military. VA pensions, on the other hand, are available to wartime veterans who are disabled, over age 65 with limited income, receiving Social Security Disability Insurance, Supplemental Security Income or skilled nursing care.
The IRS assesses payroll taxes, including Social Security tax and Medicare tax, on most types of earned income. In most cases, your employer withholds these taxes from your check, or you pay them yourself each quarter. However, because VA disability compensation and VA pensions both count as unearned income, neither one requires the payment of Social Security or Medicare tax, so the VA won't deduct any payroll taxes from your check.
According to IRS guidelines, VA disability compensation and VA pensions are both exempt from income taxes. Thus, the VA won't withhold any estimated income taxes from your check, nor will you need to include them in your gross income when you file your income tax return at the end of the year.
If you have unpaid federal taxes, the IRS may garnish your paychecks, levy your bank accounts or attempt to collect in other ways. However, according to federal law, the IRS cannot levy VA disability compensation, nor can they levy any government check you receive as public assistance, such as a VA pension. Therefore, the IRS won't take federal taxes out of your VA check even if you owe a tax debt.
Although payments from the VA are exempt from taxation and protected from federal tax levy, military retirement income is not. If you receive military retirement income, you must complete a withholding designation when your payments begin, and the military will withhold a certain amount of money from your check for federal income taxes. Likewise, if you owe back taxes, the IRS can levy your military retirement check to recover the debt.
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- IRS.gov: Information for Veterans With Disabilities
- United States Department of Veterans Affairs: Types of Compensation
- United States Department of Veterans Affairs: VA Pension Benefits -- Supplemental Income for Wartime Veterans
- Cornell University Law School: 26 USC § 6334 -- Property Exempt From Levy