All articles 6 min read

Military and Government Disability Pensions: Taxable and Nontaxable Income (2025 IRS Guide)

This guide covers “Military and Government Disability Pensions” within taxable and nontaxable income. The following material presents the IRS treatment of this topic, including the qualifications, exceptions, and examples in the source section. Read the rules alongside the facts of your own situation before deciding what to report, deduct, or document.

Adapted from Publication 525 (2025), Taxable and Nontaxable Income, published by the Internal Revenue Service. This guide retains the source edition’s years, amounts, deadlines, and examples. It is guidance for that edition, not a statement that the same figures apply to every tax year.

Context for these rules

If you retired on disability, you must include in income any disability pension you receive under a plan that is paid for by your employer. You must report your taxable disability payments on line 1h of Form 1040 or 1040-SR until you reach minimum retirement age. Minimum retirement age is generally the age at which you can first receive a pension or annuity if you aren’t disabled.

Beginning on the day after you reach minimum retirement age, payments you receive are taxable as a pension or annuity. Report the payments on lines 5a and 5b of Form 1040 or 1040-SR. For more information on pensions and annuities, see Pub. 575.

Military and Government Disability Pensions

Certain military and government disability pensions aren’t taxable.

Service-connected disability.

You may be able to exclude from income amounts you receive as a pension, an annuity, or similar allowance for personal injury or sickness resulting from active service in one of the following government services.

  • The armed forces of any country.

  • The National Oceanic and Atmospheric Administration.

  • The Public Health Service.

  • The Foreign Service.

Conditions for exclusion.

Don’t include the disability payments in your income if any of the following conditions apply.

  1. You were entitled to receive a disability payment before September 25, 1975.

  2. You were a member of a listed government service or its reserve component, or were under a binding written commitment to become a member, on September 24, 1975.

  3. You receive the disability payments for a combat-related injury. This is a personal injury or sickness that:

    1. Results directly from armed conflict;

    2. Takes place while you’re engaged in extra-hazardous service;

    3. Takes place under conditions simulating war, including training exercises such as maneuvers; or

    4. Is caused by an instrumentality of war.

  4. You would be entitled to receive disability compensation from the VA if you filed an application for it. Your exclusion under this condition is equal to the amount you would be entitled to receive from the VA.

Pension based on years of service.

If you receive a disability pension based on years of service, in most cases, you must include it in your income. However, if the pension qualifies for the exclusion for a service-connected disability (discussed earlier), don’t include in income the part of your pension that you would have received if the pension had been based on a percentage of disability. You must include the rest of your pension in your income.

Retroactive VA determination.

If you retire from the U.S. Armed Forces based on years of service and are later given a retroactive service-connected disability rating by the VA, your retirement pay for the retroactive period is excluded from income up to the amount of VA disability benefits you would have been entitled to receive. You can claim a refund of any tax paid on the excludable amount (subject to the statute of limitations) by filing an amended return on Form 1040-X for each previous year during the retroactive period. You must include with each Form 1040-X a copy of the official VA determination letter granting the retroactive benefit. The letter must show the amount withheld and the effective date of the benefit.

Generally, the VA determination letter will contain a table with five headings. The table on the letter must cover the same dates for the tax year reported on the Form 1040-X. To calculate the correct tax reduction, multiply the Effective Months by the Amount Withheld for the tax year. For example, Form 1040-X was filed for tax year 2022. The table shows the Amount Withheld effective December 2021 is $320.00. To calculate the amount for the tax reduction, multiply the 2022 Effective Months by the Amount Withheld. In this case, January–December (2022) is 12 months x $320.00 (Amount Withheld) = $3,840.00; this amount should be the amount claimed as a reduction in column B of the 2022 Form 1040-X, line 1, Adjusted gross income.

If you receive a lump-sum disability severance payment and are later awarded VA disability benefits, exclude 100% of the severance benefit from your income. However, you must include in your income any lump-sum readjustment or other nondisability severance payment you received on release from active duty, even if you’re later given a retroactive disability rating by the VA.

Special statute of limitations.

In most cases, under the statute of limitations, a claim for credit or refund must be filed within 3 years from the time a return was filed. However, if you receive a retroactive service-connected disability rating determination, the statute of limitations is extended by a 1-year period beginning on the date of the determination. This 1-year extended period applies to claims for credit or refund filed after June 17, 2008, and doesn’t apply to any tax year that began more than 5 years before the date of the determination.

Example 19.

You retired in 2019 and receive a pension based on your years of service. On August 3, 2025, you receive a determination of service-connected disability retroactive to 2019. Generally, you could claim a refund for the taxes paid on your pension for 2022, 2023, and 2024. However, under the special limitation period, you can also file a claim for 2021 as long as you file the claim by August 3, 2026. You can’t file a claim for 2019 and 2020 because those tax years began more than 5 years before the determination.

Combat-related special compensation.

Combat-related special compensation, as described under 10 U.S.C. section 1413a, is a specific entitlement only payable to retirees of the uniformed services. If you’re in receipt of combat-related special compensation, you may exclude the amount of your combat-related special compensation from your income. Other portions of your military or disability retirement pay may still be included in your income.

Terrorist attack or military action.

Don’t include in your income disability payments you receive for injuries resulting directly from a terrorist or military action. In the case of the September 11 attacks, injuries eligible for coverage by the September 11 Victim Compensation Fund are treated as incurred as a direct result of the attack. However, you must include in your income any amounts that you received that you would have received in retirement had you not become disabled as a result of a terrorist or military action. Accordingly, you must include in your income any payments you receive from a 401(k), pension, or other retirement plan to the extent that you would have received the amount at the same or later time regardless of whether you had become disabled. Disability payments you receive for injuries not incurred as a direct result of a terrorist or military action or for illnesses or diseases not resulting from an injury incurred as a direct result of a terrorist or military action may be excludable from income for other reasons. See Pub. 907.

A terrorist action is one that is directed against the United States or any of its allies (including a multinational force in which the United States is participating). A military action is one that involves the U.S. Armed Forces and is a result of actual or threatened violence or aggression against the United States or any of its allies but doesn’t include training exercises.

Using the guidance

Keep the documents that establish the dates, amounts, and circumstances described above. References to other chapters, forms, worksheets, or earlier and later sections refer to the linked IRS publication. Check the full publication and its updates before relying on a rule for a different tax year or a situation not addressed here.

Sources and further reading

The cited U.S. government text is in the public domain. Source accessed October 28, 2026. Fynoptic has organized this material for educational use and is independent of, and not endorsed by, the IRS.

Back to all articles