Tax Tips for Veterans

Tax season can be brutal for anyone, especially veterans. The good news is that veterans have a few real advantages built into the tax code. Here are the best tax tips for veterans in 2026.

Disclaimer: This is general information, not tax advice. If you have a complex situation (multiple states, retirement + disability offsets, a VA rating change, etc.), consider using MilTax or a qualified tax pro.

Federal Tax Tips for Veterans 

Keep VA Disability and VA Pension Off Your Taxable Income

VA disability compensation is not taxable, and it generally does not get reported as income on your federal return. The IRS also lists VA disability pension payments and specific VA grants (for accessible housing or vehicle modifications) as excluded from taxable income.

To avoid overreporting your income, make sure you:

• Don’t enter VA disability as “other income.” If a software prompt asks about “benefits,” it usually means taxable benefits, not VA disability.
• Expect no tax form for VA disability. You typically won’t receive a 1099 for disability comp, so it’s easy to overthink and accidentally add it.
• Keep your VA award letter handy in case your preparer asks what the payments are and why they are omitted. 

If Your VA Rating Increased Retroactively, You Might Be Owed a Refund

If the VA increased your disability percentage and the decision applies retroactively, you may be eligible to file an amended return and recover taxes tied to amounts that should have been treated as VA-related excluded compensation. The IRS calls this out directly.

Approach it like this:

• Find the effective date on your VA decision letter and list the tax years it impacts.
• Pull the returns for those years and look for income that could have been taxed differently because of the VA change. 
• Use the IRS “Where’s My Amended Return?” tool after filing amendments, so you’re not guessing timelines.

GI Bill Payments Are Tax-Free 

Payments from GI Bill programs are tax-free (including tuition, housing, books, etc.). But there’s a catch that trips people up: you generally can’t use the same expenses paid with tax-free education assistance to also claim certain education tax benefits.

To avoid the most common filing mistake:

• Separate out-of-pocket qualified expenses from expenses paid by benefits.
• Don’t assume “school costs” automatically qualify for an education credit if the GI Bill covered them.
• Save your 1098-T and itemized school account statement so you can show what was billed vs. what you personally paid. 

Combat Pay Exclusion Can Boost Your Refund

Nontaxable combat pay is excluded from taxable income. For the Earned Income Tax Credit (EITC), you can choose to include nontaxable combat pay as earned income or leave it out. The IRS recommends running it both ways because the credit can change depending on your situation.

Make sure you check:

• Find combat pay on your W-2 (often Box 12, code Q).
• Run the EITC calculation twice (with and without the election) if your software doesn’t do it automatically.
• If married filing jointly, each spouse can make their own election when both have combat pay. 

Active-Duty PCS Moving Expenses Can Still Be Deductible

Most taxpayers can’t deduct moving expenses, but active-duty service members can deduct qualifying unreimbursed PCS moving expenses (and may be able to exclude certain reimbursed moving expenses) when the move is due to military orders.

Be sure to:

• Confirm the move qualifies as a PCS under IRS rules (orders matter).
• Keep the reimbursement paperwork so you don’t deduct costs that have already been reimbursed.
• Use Form 3903 and keep receipts in a single folder (digital is fine).

Reservists: Deduct Travel Over 100 Miles 

If you’re in the National Guard or Reserves and you travel more than 100 miles from home and stay overnight for drills/meetings, you may be able to deduct unreimbursed travel expenses as an adjustment to income, subject to limits (often tied to federal per diem rates).

To do it right:

• Track mileage, lodging, and meals separately and note the drill location and dates.
• Document what was reimbursed so you only claim what you actually paid.
• Remember the “overnight” requirement.

Don’t Count on “Uniform Deductions” Unless You’re Self-Employed or in a Narrow Exception

For most W-2 employees, unreimbursed employee expenses (including uniforms, dry cleaning, and similar work costs) aren’t deductible under current rules.

How to approach it:

• If you’re W-2 and your employer didn’t reimburse you, it usually doesn’t help federally.
• If you’re self-employed, legitimate business expenses may be deductible under a different set of rules.
• If you’re in a specialized exception category, verify that you qualify before assuming so. 

State Tax Breaks That Can Be Worth Thousands

State benefits vary a lot. The biggest recurring state-level lever for many veterans is how your state treats military retirement pay.

State-by-State: How Military Retirement Pay Is Taxed

Below is a breakdown of state exemptions. “Partial exemption” usually means an age-based exemption, income limits, caps, or a general retirement exclusion that may apply to military retired pay. 

Always verify current thresholds with your state Department of Revenue.

• No state income tax: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, Wyoming.
• Fully exempt: Alabama, Arizona, Arkansas, Connecticut, Hawaii, Illinois, Indiana, Iowa, Kansas, Louisiana, Maine, Massachusetts, Michigan, Mississippi, Missouri, Nebraska, New Jersey, New York, North Carolina, North Dakota, Ohio, Oklahoma, Pennsylvania, Rhode Island, South Carolina, West Virginia, Wisconsin.
• Partial exemption: Colorado, Delaware, District of Columbia, Georgia, Idaho, Kentucky, Maryland, Minnesota, Montana, New Mexico, Oregon, Utah, Vermont, Virginia.
• Taxable: California.

How to Ballpark Your Value

Here is a way to get a quick estimate of your potential tax value:

• Take your annual military retirement pay.
• Multiply by your approximate state marginal tax rate.
• Adjust down if your state only offers a partial exclusion/cap.

Here’s how that looks in action: $50,000 retired pay × 5% ≈ $2,500/year in state income tax exposure, before any caps or exclusions.

Property Tax Exemptions Can Beat Income Tax Savings 

Many states offer property tax relief for disabled veterans, often tied to disability rating and/or “permanent and total” status, and it’s frequently administered through county offices with an application process.

How to avoid missing it:

• Call your county assessor to find out which rating/status qualifies and what the filing deadline is.
• Ask whether the exemption is complete or partial, and whether it applies only to a primary residence.
• Keep proof of eligibility ready (award letter, ID, proof of residency). 

Credits and Refund Boosters That Matter a Lot for Veteran Households

Child Tax Credit and Additional Child Tax Credit

For 2025, the Child Tax Credit is worth up to $2,200 per qualifying child, and up to $1,700 per qualifying child may be refundable as the Additional Child Tax Credit (ACTC), depending on eligibility.

What usually determines the outcome:

• Whether the child meets the IRS rules (age, residency, SSN, dependency rules).
• Whether you have enough earned income to qualify for the refundable portion. 

Child and Dependent Care Credit

If you paid for childcare so you could work or look for work, this credit can reduce your tax bill.

Make sure to:

• Keep the provider’s name, address, and taxpayer ID.
• Keep proof of payment (bank statements, receipts).

Saver’s Credit (Retirement Contributions)

If your income is in the eligible range and you contributed to an IRA or employer retirement plan, you may qualify for the Saver’s Credit. The IRS notes a maximum of $1,000 ($2,000 if married filing jointly), depending on eligibility.

Home Energy Credits: Watch the Deadline

The IRS currently states the Residential Clean Energy Credit (30%) applies to qualifying installations through December 31, 2025, and it’s not available for property placed in service after that date.

If you installed in 2025:

• Save invoices, proof of payment, and manufacturer/installer documentation.
• Confirm the system was placed in service during the eligible window.

Use MilTax for Free Federal + State Filing

The IRS notes that MilTax can be used to file federal and up to five state returns for free up to 365 days after military separation or retirement.

MilTax tends to be especially helpful if you dealt with:

• A move under orders.
• Multi-state issues.
• Combat pay and related filing rules.

Avoiding Tax Scams That Target Veterans

Scammers push urgency, promise refunds they can’t justify, and try to get you to sign things you haven’t reviewed. The IRS points veterans to VSAFE resources and has a dedicated page on what to do if you were scammed.

Red flags that should end the conversation immediately

• “Guaranteed refund” promises before reviewing documents.
• Requests to sign a blank return.
• A preparer who won’t provide a PTIN or who won’t explain the numbers.

Safe paths to take

• Use IRS Free File or an IRS-certified volunteer program if you qualify.
• Use MilTax if you’re eligible.
• If you think you were scammed, use the IRS reporting guidance and the VSAFE resources. 

Veterans Shouldn’t Be Leaving Money on the Table

When you understand which benefits are excluded, which credits apply to your household, and how your state treats military retirement pay, you put yourself in a position to keep more of what you earned. 

A few careful checks now can translate into meaningful savings and fewer headaches later. Use these tax tips for veterans to file with confidence and start the season knowing you’re not leaving money on the table.