Veteran Tax Benefits: Tips to Maximize Your Return

Expert explains federal and state tax breaks for retired service members

Aaron Kassraie,

Updated February 06, 2025

AARP

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En español

Published January 26, 2023

/ Updated February 06, 2025

AARP Staff (Getty Images)

Filing taxes once you’re retired from the military may seem less complicated than when you were still in the service, yet military veterans can still get important benefits from the tax code that you don’t want to miss out on.

To help with your tax filings, we spoke with CPA and tax expert Lisa Greene-Lewis of TurboTax, who provided helpful information for military veterans. Remember to file your taxes before this year’s April 15 deadline. And don’t forget: Tax advice that applies to civilians can benefit you too.

Federal Tax Breaks

Disability benefit payments from the Department of Veterans Affairs (VA) aren’t taxable. This includes disability compensation and pension payments, disability grants for home or vehicle modifications (such as wheelchair ramps), and benefits under dependent-care assistance programs. These payments should not be included in your gross income.

Note: If you increased your service-connected disability rating or were granted Combat-Related Special Compensation, you may be eligible for a tax refund. However, this can only be applied to the year the VA reassessed your disability level, so you may have to file an amended return for that tax year.

Premiums paid by those enrolled in the Survivor Benefit Plan (SBP) are deducted from gross retirement pay before taxes, lowering your taxable income. This is why SBP is more affordable than most private insurance options. Note that because military retirement pay is not considered earned income, it isn’t subject to Social Security payroll taxes.

Other VA tax exemptions include:

Veterans’ education benefit payments received through the Department of Veterans Affairs (VA)
Interest from VA life insurance policies
Benefits under a dependent-care assistance program
Dependency and Indemnity Compensation (DIC) payments made to all spouses, dependents and parents
Death benefits paid to a survivor of a member of the armed forces who died after Sept. 10, 2001

State Tax Breaks

Disabled veterans can qualify for property tax exemptions at the state level. These tax breaks, usually tied to a specific disability rating, can help veterans save thousands of dollars. You can view a list of all property tax exemptions by state and disability percentage here. However, since tax laws often change, verifying the tax structure with your local taxpayer assistance center, state tax office or tax professional is best.

Military retirement pay may be untaxed or have other special provisions in some states. Review a list of states that do and don’t tax military retirement pay at Veteran.com. If you believe you are eligible, verify the tax law with your local taxpayer assistance center, state tax office or tax professional.

Fast facts on state taxes:

States typically offer tax benefits only to veterans honorably discharged or released from active duty under honorable circumstances.
State benefits usually include property tax relief according to a home’s value.
Benefits are often given to the spouse or surviving spouse of honorably discharged veterans.
Many states offer extra tax benefits for disabled veterans. Check your state’s revenue website for details on available benefits and how to apply.

AARP Foundation Tax-Aide

The AARP Foundation Tax-Aide program is the most extensive free, volunteer-based tax assistance and preparation program in the U.S.

The nationwide program is aimed at people 50 and older or those with low to moderate incomes, but Tax-Aide is open to anyone, free of charge. You don’t need to be an AARP member to take advantage of Tax-Aide’s knowledgeable volunteers, nor will there be any sales pitch for other services.

Learn more and find a location near you.

Specific state tax breaks for veterans

California: The Golden State waives license taxes and fees for honorably discharged veterans who sell any goods except alcohol.

General property tax exemption: Service members, veterans and eligible family members may receive an exemption of up to $4,000.
Veterans with a 100 percent disability rating and their surviving spouses may receive a significant reduction in their taxable home value, with additional benefits available to those with lower incomes.

Florida: Veterans in the Sunshine State with a minimum disability rating of 10 percent may be eligible for a $5,000 reduction in their property’s assessed value.

Veterans with total and permanent service-related disabilities may be eligible for a total exemption from property taxes. A similar exemption is available to veterans who use wheelchairs.
Veterans 65 or older who are partially or permanently disabled may receive a discount on the assessed value of their property.

New Jersey: Veterans in the Garden State may be eligible for a $6,000 state income tax exemption. Spouses (or civil union partners) filing a joint return with a qualifying veteran may also qualify for an exemption.

Veterans may qualify for an annual $250 property tax deduction; veterans who are permanently and totally disabled may be fully exempt from property taxes on their primary home.

New Mexico: Property owned by a veteran or surviving spouse in New Mexico may be exempt from taxes up to $4,000 of the home’s value.

The property of a veteran with a 100 percent disability rating — including joint or community property of the veteran and the veteran’s spouse — may be exempt from property tax if the disabled veteran occupies the home as their primary residence.

New York: The Empire State offers qualifying veterans three property tax exemptions that provide full or partial tax breaks, depending on when their home was purchased and when a veteran served.

— Source: CPA and tax expert Lisa Greene-Lewis, TurboTax

Editor’s note: This article, originally published Feb. 16, 2021, has been updated with new information for this year’s tax filings.

Aaron Kassraie writes about issues important to military veterans and their families for AARP. He also serves as a general assignment reporter. Kassraie previously covered U.S. foreign policy as a correspondent for the Kuwait News Agency’s Washington bureau and worked in news gathering for USA Today and Al Jazeera English. 

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