I am a retired Navy veteran received retirement pay. I also receive 80% disability from Veterans affairs for service connected disabilities. Do I qualify
for the exclusion for a service connected disability? I've read in Publication 525 that should not include in income the part of my pension that I would have received if the pension had been based on a percentage of disability. Please advise if this is correct and if so how do I subtract that percentage on my return?

it depends; Military retirement pay based on age or length of service is considered taxable income for Federal income taxes. However, military disability retirement pay and veterans' benefits, including service-connected disability pension payments, may be partially or fully excluded from taxable income. Veterans' benefits are excluded from Federal taxable income. The amounts paid to veterans or their families are not taxable aslongas Disability compensation and pension payments for disabilities paid either to veterans or their families.So, Military Disability Retirement Pay received as a pension, annuity or similar allowance for personal injury or sickness resulting from active service in the armed forces should not be included in taxable income.



In the case of pty tax exemption for a disabled veteran, you need to contact your home sate Dept f Revenue for more info in detail. , In general, veterans who are not totally and permanently disabled, but who have a disability rating of 70% or higher, are eligible for an exclusion of $150K. Surviving spouses of deceased disabled veterans that were eligible for the $300K exclusion are eligible to receive the same benefit for eight additional years after the veteran?s death. If you, as a disabled veteran, do not own a house, but have a designated ?primary family caregiver? who does own a house, the caregiver can receive the exclusion for the time he or she continues in that role.