Military retirement and disability pay
This page answers one question: how retirement pay and VA disability pay are treated. Every statement below is a restatement of federal authority, and the source for each one is named with it.
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IRS Publication 525 treats military retirement pay as pension income for federal purposes, and DFAS administers retired pay and issues the associated year-end statements.
Tax year 2025. Read as effective from 2025-01-01. Source: Publication 525, Taxable and Nontaxable Income; Retired military pay administration.
- State treatment of military retirement pay differs by state and is not addressed in this federal cohort.
26 U.S.C. § 104 excludes from gross income certain amounts received as compensation for injuries or sickness, including amounts described in the statute for personal injuries or sickness resulting from active service in the armed forces.
Tax year 2025. Read as effective from 2025-01-01. Source: 26 U.S.C. § 104 — Compensation for injuries or sickness; VA disability compensation.
- Whether a particular payment falls within the statutory exclusion depends on the payment's authority and characterization.
What your state does on top of this
The rules above are federal, so they follow you to any duty station. Whether your state taxes the same pay is a separate question, answered by that state's own tax authority.
Primary sources
- Publication 525, Taxable and Nontaxable Income Internal Revenue Service — 2025 returns edition
- Retired military pay administration Defense Finance and Accounting Service — Retrieved 2026-08-14
- 26 U.S.C. § 104 — Compensation for injuries or sickness Office of the Law Revision Counsel, U.S. House of Representatives — Prelim edition
- VA disability compensation U.S. Department of Veterans Affairs — Retrieved 2026-08-14
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General education, built from primary government sources. Rules change, and your own facts matter. This is not individualized tax or legal advice.