Tax Breaks and Benefits Available to All Veterans
Veterans and their families qualify for a variety of benefits, credits and exemptions during tax season. Tax breaks and benefits are offered at both the federal and local levels of tax authorities. If you or someone in your household has served in the military, these benefits and tax breaks can have a substantial impact on your personal finances.
Free Tax Prep Services
If you’re a military veteran, you can have your taxes prepared for free through services provided by a Memorandum of Understanding (MOU) established between the IRS and the U.S. Department of Veterans Affairs (VA). The IRS reported that over 1.3 million tax returns have been prepared free for veterans since the MOU’s inception in 2015.
The U.S. Department of Defense also offers support for veterans filing their taxes through Military OneSource. Service members can access free tax services with MilTax, a tax software designed to account for the unique aspects of military life.
The Earned Income Tax Credit
The Earned Income Tax Credit (EITC) helps low- to moderate-income workers reduce their tax liability and increase their tax refund. Eligibility for the EITC is determined based on income level, number of dependents, disability status and other factors.
There are specific rules regarding combat pay that factor into a service member’s eligibility for the EITC. Nontaxable military pay, such as combat pay or a basic allowance for housing and subsistence, is not considered earned income for the EITC. However, members of the armed forces can elect to have their nontaxable combat pay included in their earned income for the purposes of the EITC.
If you receive combat pay, the IRS recommends calculating the value of the EITC both with and without the combat pay included in your earned income to determine which will allow you to claim the highest credit amount. If you do choose to include combat pay in your earned income, you must include all the nontaxable combat pay you received during the tax year.
Roughly two million veteran and military households receive the Earned Income Tax Credit each year.
State-Specific Tax Breaks
Each state has individual guidelines for the exemptions and credits veterans are eligible to receive. To give you an idea of what types of tax breaks are available, consider a few examples of the offerings for veterans in different states.
In Florida, any veteran who was honorably discharged or who has been certified as having a service-connected, permanent and total disability is exempt from paying property taxes on their home. This benefit also extends to surviving spouses of veterans who died in active duty if the veteran was a permanent resident of Florida in the year prior to their death.
Additionally, Florida veterans who have a combat-related disability of 10% or more are eligible to receive up to a $5,000 property tax exemption on their primary residence. The amount of the discount corresponds to the veteran’s VA disability percentage.
California, meanwhile, provides exemptions on property taxes and the costs associated with owning a business for veterans. The state’s Business License, Tax and Fee Waiver benefit exempts veterans from paying state, local and municipal business license fees, taxes and other business fees as long as the veteran’s business does not sell alcohol.
Property tax exemptions are offered to both honorably discharged and disabled veterans in California. The Veterans’ Exemption waives up to $4,000 of property tax owed by any veteran in the state. The Disabled Veterans’ Exemption further reduces the amount of property tax owed by veterans with a total disability. This threshold is adjusted each year to account for inflation.
Tax Credits and Exemptions Available Specifically to Disabled Veterans
The IRS allows disabled veterans to claim a federal tax refund based on certain criteria. If an increase in the veteran’s percentage of disability is determined by the VA or if the combat-disabled veteran is granted Combat-Related Special Compensation, the disabled veteran can file an amended tax return to receive a refund based on these determinations.
Many disabled veterans receive compensation benefits from the VA. The payments you receive from VA disability compensation are tax-free, so you won’t have to count them in your income calculations when you file your taxes.
Property Tax Exemptions
Nearly every state offers some form of property tax exemption for disabled veterans, though these benefits vary widely from state to state. Some states offer full property tax exemptions for veterans who are considered 100% disabled by the VA. These states include Florida, South Carolina and Maryland.
In other states, disabled veterans can deduct a certain amount from their property tax liability based on the severity of their disability. States offering this type of exemption include California, Nevada and Massachusetts. If you are a disabled veteran, your state’s tax authority can provide more information about which benefits and exemptions are available to you.
