Veterans' Benefits: Which VA Payments Are Not Taxable?
Published November 6, 2026
Veterans' benefits paid by the U.S. Department of Veterans Affairs (VA) are often excluded from federal income. The IRS says not to include benefits paid under laws and rules that the VA administers. It lists the common types below. This guide covers the general rules. It is not advice about your return or your VA award.
Which payments the rules cover
The exclusions cover benefits paid to veterans. For some benefits, the payment goes to their family instead. The IRS lists the common types in this guide and in Publication 525. Benefits are sorted by type, not by the name on the form. A benefit that is not on either list still needs a check before you exclude it. Do not assume a payment is excluded just because it comes from the government.
Disability benefits
Disability compensation and disability pension payments paid to you or your family are not income. The IRS also excludes grants for a home designed for wheelchair living, and grants for a motor vehicle for a veteran who lost the sight or the use of limbs.
Education benefits
VA education benefits are not included in your income. The IRS says education, training, and subsistence allowances paid under VA programs are not taxable. This includes allowances for education, training, and subsistence under any law the VA administers. They are not treated as scholarships or fellowship grants, so the scholarship rules do not apply to them.
Insurance proceeds and dividends
Veterans' insurance proceeds and dividends paid to a veteran or the veteran's beneficiaries are not taxable. This includes proceeds of a veteran's endowment policy paid before death, according to Publication 525.
A one-time severance payment
The IRS says not to include a one-time lump-sum disability severance payment from the Department of Defense if you separated from the military because of combat-related injuries.
What still needs a check
Not every military payment is a VA benefit. Military pay that is not a VA benefit follows the general income rules. Publication 525 explains each category. If you are not sure how a payment should be treated, read the form it came with before you file.
Reading your award letter
A VA award letter lists the type of benefit and the amounts. Match each payment to a category before you decide how to report it. One statement can show several payment types, so sort them first and then apply the rule for each one.
Records to keep
Keep your VA award letters, the year's payment statements, and any tax form that the VA or another payer sends you. Award letters show the type of benefit. If you lose one, ask the VA for a copy and keep it with the year's statements. Keep these papers as long as your other tax records. Our guide to how long to keep tax records covers the timeline.
Common mistakes
- Counting VA disability compensation as income because it arrived as a deposit that looks like a paycheck.
- Assuming an education allowance is a scholarship. The IRS treats it differently.
- Skipping the award letter and relying on memory for the amounts.
Next steps
Review your VA award letters and the year's payments. Separate the VA benefits from any military pay or other income. Keep each payment with its matching letter, so you can explain its category later if you are asked. Then compare that list with the forms you received, and read the Publication 525 categories that match each payment.
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Sources: Sources: IRS, Veterans tax information and services (https://www.irs.gov/individuals/veterans-tax-information-and-services); IRS, Publication 525 (2025), Taxable and Nontaxable Income (https://www.irs.gov/pub/irs-pdf/p525.pdf) This is general information, not advice about your specific return.
