Will Veterans Administration (VA) benefits be counted as taxable income effective January 1, 2014?

The IRS has provided guidance on how VA benefits should be considered when calculating income. As noted in IRS Publication 17, states should not count any veterans benefits paid under any law, regulation or administrative practice administered by the Department of Veterans Affairs in their income calculations. CMS agrees that VA benefits are not part of the Modified Adjusted Gross Income (MAGI) calculation.

Following are some examples of payments issued to veterans' or their families that are not taxable:

Education, training and subsistence allowances
Disability compensation and pensions payments for disabilities paid either to veterans or their families
Grants for homes designed for wheelchair living
Grants for motor vehicles for veterans who lost their sight or the use of their limbs
Veterans' insurance proceeds and dividend paid either to veterans or their beneficiaries, including the proceeds of a veteran's endowment policy paid before death
Interest on insurance dividends left on deposit with the VA
Benefits under a dependent care assistance program
The death gratuity paid to a survivor of a member of the Armed Forces who died after September 10, 2001
Payments made under the compensated work therapy program
Any bonus payment by a state or political subdivision because of service in a combat zone

Additional information on how the IRS views veteran's income can be found at http://www.irs.gov/pub/irs-pdf/p17.pdf.