As soon as someone steps into adulthood, they are advised one thing, and that is to pay their taxes accordingly. You have to declare your income and fill the necessary documents in a right way to avoid some of the most unpleasant results of, for example, tax evasion.
Fines that come as a result of tax violations can start at $100,000 and go up to $500,000, and such violations can also threaten one with up to 5 years in prison. Therefore you can see that this is no child’s play.
But abiding by all of the tax rules that have to be respected can get a bit hard, especially if you are a veteran. Being honorably discharged has its benefits – but it does give you a hard time as well.
For example, there are some benefits that you might have as a veteran that you don’t have to report as an income – therefore, they are not taxable; on the other hand, there are benefits that will you have to pay taxes for. So it’s best that you know which one is which and what you have to report at the end of the month.
In order to help you, we have compiled what we call the ultimate tax guide for veterans, in which we’ll provide the answers to most of your questions. Without any further explanation, let’s dive right in.
Most Common Tax Benefits for Veterans
We’ll start by informing you over which are the common benefits a veteran has, in regard to tax paying and such.
First of all, there’s the Life Insurance, which is quite basic – if not mandatory when it comes to veterans. Then, we have the Disability Pension and Compensation, as well as a Compensated Work Therapy Program. Housing Grants and even Education and Training allowances are some of the things you can benefit of, so make sure to take full advantage of them.
All of the aforementioned benefits do not have to be reported as income, therefore you don’t have to pay tax for them – these make up the list of the federal tax exclusions that come into effect if you are a veteran.
Now, having mentioned the things you don’t have to pay taxes for, let’s move on to those that you have to report as income and, in the end, pay taxes for.
Veteran Benefits that are Taxable
We’ll first take a look at the Retirement Pay, which is usually a taxable income. Most of the times, it will be declared and you will have to pay taxes for it. However, in certain cases, such as if you receive these payments for a combat-related injury or if you were able to receive a disability-related payment before the 25th of September, 1975, the Retirement Pay will be rendered as tax-free income.
If while on active duty, you were injured, you are eligible for a lump-sum disability severance payment from the moment of discharge. What you must keep in mind is that this you will have to pay taxes in full for this lump-sum, in the year you received it.
In the end, we’ll take a look at Health Care. When it comes to veterans, the Veterans’ Affairs offers a large number of health-related services to those that have served in any of the Army’s branches.
However, as a veteran, you can choose between the Veterans’ Affair health coverage and have your own health care policy. Choosing the second option means that you can get a tax credit afterward – if you are eligible. But if you choose to stay enrolled in the Veterans’ Affairs health care you will not qualify for premium tax credits.
Now that we’ve ruled out the benefits that are tax-free and some of those that are taxable, it’s time to move on to some tax-related advice – so you know exactly what to do and how to handle everything that may come up.
Tax Advice for Veterans
First of all, one of the things you probably already know – but worth mentioning nonetheless -, is to keep all your records and documents in a safe place, somewhere you could not accidentally misplace them. The documents are required to prove that you are indeed a Veteran – and thus prove that you qualify for some of the tax-free benefits.
Now, another thing you should keep at the back of your head is that these tax benefits will change every year. That’s why it is better you kept yourself always informed so you’d avoid any unpleasant situations. In order to get updated with the latest information, you can always access websites like eBenefits and even governmental websites.
Also, before trying to take advantage of a certain tax-free benefit, make sure you are eligible for it. For example, if you are not severely injured and end up unable to use some of your body parts, then you are not eligible for grants and benefits that have the specified situation as a requirement.
Again, you have to be well informed before applying for such benefits – doing something wrong might lead to unwanted problems. Of course, everybody does mistakes once in a while – but you wouldn’t want to be caught up in a trial with the IRS because of some misunderstood information.
We finally got to what’s probably the most important thing a veteran should do to have his or her taxes in order. As you probably know, your military payments come in full – as in they are not getting taxed. Keeping a track of your tax liability is very important here and – as advised by the IRS – the Form W-4P (Withholding Certificate for Pension or Annuity Payments) should be completed before you left the military. Doing so will let the Defense Finance & Accounting Service know how much from your monthly retirement pay to deduct as tax.
This has been our ultimate tax guide for veterans and we hope we have managed to enlighten you a bit regarding your income and what you should declare as taxable. But, remember to be one step ahead of all this by getting informed properly about your tax benefits as a veteran!