Disability benefits resulting from active service in the armed forces (regardless of country), National Oceanic and Atmospheric Administration (NOAA), the Public Health Service, and the Foreign Service aren't taxable except when the pension (or part of it) is based on years of service.
Report the amount that's based on years of service and exclude the portion attributable to a service-connected disability.
You don't need to report your disability payments if any of these conditions apply:
- You were entitled to receive a disability payment before September 25, 1975.
- You were a member of (or committed to becoming a member of) the applicable government service before September 24, 1975.
- You receive the disability payments for a combat-related injury under certain situations.
- You would be entitled to receive full or partial disability compensation from the Department of Veterans Affairs if you filed an application.
If you're taking the sales tax deduction, you should enter your nontaxable benefits to maximize the amount of your deduction.
