VA Disability Income Reportable/Taxable?

[rtsietsema]

I have a client who was recently declared 100% disabled by the VA, and received close to $200,000 last year as back payment for the disability. She did not receive any type of tax reporting form at the end of the year, which I found odd. I believe this is non-taxable income, but is it reportable income? Should she have received some type of document from the government listing it as non-taxable income? I don't want to ignore this if it should be reported somehow. I would appreciate any experienced help with this. Thanks.

[Koss]

VA Disability Benefits

It is not considered income. See IRS Publication 907:

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Do not include disability benefits you receive from the Department of Veterans Affairs (VA) in your gross income. If you are a military retiree and do not receive your disability benefits from the VA, see Publication 525 for more information.
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If your client has been disabled for several years, she may have been getting disability benefits from some other source. That could be very interesting and very complicated. For example, if your client received a couple years' worth of disability benefits from a disability plan at a private employer, where the employer was paying the premiums, then those benefits were taxable in the year she received them.

Now that the VA has determined that her disability is service-connected, and has awarded benefits retroactively, she might be required to pay back some of the previous benefits to the private insurance carrier.

If that's what has happened, then she has a repayment of income, which may allow her to claim a refund of some of the tax paid on those benefits in earlier years.

BMK

[Burke]

She did not receive any type of tax reporting form at the end of the year, which I found odd. I believe this is non-taxable income, but is it reportable income? Should she have received some type of document from the government listing it as non-taxable income?

No, the VA does not send any kind of document either to the IRS nor to the recipient for these type of non-taxable benefits. You do nothing with it on the tax return.

[rtsietsema]

Thanks

I suspected as much, but appreciate the confirmation.

Thanks,

[TAX4US]

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