SGT. SHAFT: Can I be taxed on my disability pay?

Dear Sgt. Shaft:

I know that my over 50 percent disability pay is not federally taxed, but I heard that some states and cities can tax my disability pay when residing in their state? Is this true of any of the 50 states? I also saw that this article I read was written published on Oct. 1, 2007; “is it still valid your informational source”? Because I hear in August 2011, they’ll be making some modifications, and if so; please send me some sources to read up on; thank you.

Kind regards,
B.D.M,
Via the Internet

Dear B.D.M.:

My source at the Non-Commissioned Officers Association (NCOA) tells me that you are quite correct that VA compensation is not taxed by the federal government.

In fact, IRS Publication 907 provides an explanation on VA disability benefits that simply states: Do not include disability benefits you receive from the Department of Veterans Affairs (VA) in your gross income for tax purposes.

Most states use the annual adjusted gross income information from an individual’s federal tax return and therefore the disability benefit would not be taxed by the state.

In addition to the exclusion of VA disability benefits, the pamphlet clearly states, “Do not include in your income any veterans’ benefits paid under any law, regulation, or administrative practice administered by the VA.” IRS Publication 907 is available and can be reviewed at http://www.irs.gov/publications/p907/ar02.html#en_US_2010_publink10008638.

I would suggest that you contact your state’s Department of Revenue or your personal tax preparation office since you did not provide your specific state and city to address your taxation concerns.

You are quite right to question the validity of any old information on the Internet, especially when on issues where state and federal laws change annually. The Internet has a lot of material that has been interpreted by people of all backgrounds and levels of education that we in the military have called “barracks lawyers.” Their information may not be accurate and certainly should not be considered as the basis of a dispute with agencies like IRS and state revenue officials or in a legal proceeding.

Shaft Notes

• The Sarge recently received this heads up from Vietnam buddy Mike Hughes requesting that I share the following information with my readers: The Servicemembers Civil Relief Act (SCRA), enacted in 2003, provides certain protections on mortgages and foreclosure actions for active military personnel and for a time after they are released from active service. Those protections are outlined in Section 303 of the SCRA.

Unfortunately those protections are not currently included for surviving spouses for those service members who die in military service for service connected reasons. There have been several instances where lending institutions have immediately started foreclosure procedures upon the death of a service member, pushing the surviving spouse and family out of their homes with no recourse.

Rep. Bob Filner, California Democrat, has introduced legislation, HR 1263, to amend the SCRA to provide surviving spouses with this same protection as the service member. It was introduce on March 30, 2011, and referred to the Committee on Veterans Affairs with no co-sponsors.

The House Committee on Veterans’ Affairs recently held a seminar titled, “Educating the Financial Service Industry on the Servicemembers Civil Relief Act and the VA Loan Guaranty Program.” The seminar was designed to educate attendees from the financial industry about the Servicemembers Civil Relief Act (SCRA) and for participants to discuss best practices in outreach and compliance in an open forum.

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