Are VA Survivor Benefits Really Taxable? Avoid this Mistake + FAQs

No. VA survivor benefits – including Dependency and Indemnity Compensation (DIC), Survivors Pension (Death Pension), accrued benefits, and burial/plot allowances – are generally tax-free at the federal level 🎉.

These benefits were specifically designed to support veterans’ families without adding any tax burden.

Surprising fact: Over 400,000 surviving spouses of U.S. veterans receive tax-exempt VA benefits each year, keeping 100% of those payments without owing a dime to the IRS.

And that’s just spouses – thousands of children and even parents of fallen service members also receive VA survivor benefits each year, all tax-free.

What you’ll learn in this article:

• All types of VA survivor benefits and their tax status: Understand DIC, death pension, accrued benefits, burial and plot allowances, and whether any taxes apply.

• Federal vs. state tax rules: How federal law exempts these benefits and whether states follow suit (plus why some survivors never pay taxes on this income).

• Common mistakes to avoid: Learn the biggest pitfalls widows, widowers, and tax preparers should sidestep (like mistakenly reporting untaxed VA benefits as income 🙅).

• Key terms, laws & recent changes: A breakdown of crucial concepts (Gold Star Families, “Widow’s Tax” repeal, IRS rules) so every audience – from veterans’ families to CPAs – stays informed.

• Real examples & comparisons: See how VA survivor benefits stack up against Social Security or military pensions, with scenarios showing exactly what is (and isn’t) taxable.

VA survivor benefits provide vital financial relief for widows, widowers, children, and even parents of deceased veterans. Below, we’ll immediately answer the tax question, then dive deep into each benefit type, clarify tax implications, highlight common misconceptions, and give expert tips for everyone from grieving families to professional estate planners.

Tax-Free Relief for Survivors: The Immediate Answer ✅

If you’re looking for a quick answer, here it is: VA survivor benefits are generally not taxable. This means the money a veteran’s family receives from the VA after the veteran’s death usually does not count as income on federal or state tax returns.

Whether it’s a monthly DIC check for a widow, a survivors (death) pension for a low-income child, or a one-time burial expense reimbursement, the IRS treats these benefits as tax-exempt.

Why is that?

Federal law explicitly excludes most VA benefits from taxable income to ensure that grieving families keep the full support intended for them.

The Department of Veterans Affairs labels payments like DIC and death pensions as “tax-free monetary benefits.” In practical terms, this means survivors don’t get a Form 1099 for these VA payments, and they don’t report them when filing taxes.

Importantly, this tax-free treatment applies across the board – to widows and widowers, dependent children, and even eligible parents receiving VA survivor benefits. No matter your relationship to the veteran, if the payment comes from a VA survivor benefit program, you won’t owe federal income taxes on it.

And because states generally follow federal tax rules on veterans’ benefits, you won’t owe state income tax either in almost all cases.

Now that we’ve established the big picture (💡 spoiler: the IRS isn’t taxing your VA survivor benefits), let’s break down each type of benefit. It’s helpful to understand exactly what each program is, who it helps, and why the payments are tax-exempt. This context will also clarify some exceptions and comparisons we’ll discuss later.

Understanding Each VA Survivor Benefit (DIC, Pension, Accrued, Burial) 📋

VA offers several types of survivor benefits, each with a specific purpose. Let’s demystify the big ones – DIC, Survivors Pension, accrued benefits, and burial/plot allowances – including what they are, who gets them, and how they’re treated for taxes.

Dependency and Indemnity Compensation (DIC)

Dependency and Indemnity Compensation, or DIC, is perhaps the best-known VA survivor benefit. It’s a monthly payment to eligible survivors (usually a veteran’s surviving spouse, minor children, or sometimes dependent parents) when a service-connected injury or illness caused the veteran’s death. In plain terms, DIC is like a continuation of the veteran’s service-connected disability compensation, paid to their family as compensation for the service-related sacrifice.

• Who qualifies? Widows/widowers of veterans who died from a service-related condition (or whose service-connected disabilities were rated totally disabling for certain periods before death) typically qualify. Unmarried children under 18 (or under 23 if in college) can also receive DIC in some cases. There’s even a Parents’ DIC for low-income surviving parents of the veteran.

• Tax status: DIC is 100% tax-free. The VA explicitly categorizes DIC as a “tax-exempt” benefit, and neither the federal nor state governments tax these payments. Whether a spouse receives a standard DIC monthly rate (around $1,562 per month in 2023 for reference) or additional allowances for children or disabilities, none of it is counted as taxable income. These DIC rates typically increase annually for inflation (just like Social Security), and any cost-of-living raises remain tax-exempt. Survivors receiving DIC do not report it on their tax returns.

VA Survivors Pension (Death Pension)

Another key benefit is the VA Survivors Pension, sometimes called the Death Pension. This is a needs-based benefit for survivors of wartime veterans. Unlike DIC, a death pension doesn’t require the veteran’s death to be service-connected. Instead, it helps provide a minimum income to eligible survivors (typically a low-income surviving spouse or unmarried child) if the veteran had wartime service.

• Who qualifies? Surviving spouses who haven’t remarried, or unmarried dependent children, of deceased veterans who served during designated wartime periods may qualify. There is an income limit: the survivor’s countable income must fall below the yearly pension limit set by Congress (which adjusts annually). For example, if a widow’s other income is very low, VA pays a monthly pension to bring her total income up to the allowed level. If her income is above the threshold, she won’t receive pension (or will receive a reduced amount). Additionally, survivors who are disabled or housebound can qualify for higher pension amounts (Aid & Attendance), which are also tax-free.

• Tax status: VA Survivors Pensions are also tax-free. Even though it’s called a “pension,” it’s not like a taxable retirement pension from a job – it’s a VA benefit more similar to an assistance payment. The IRS does not tax Survivors Pension payments. For example, if a widower gets a small VA pension each month to supplement his income, he does not include that money in gross income on his tax return. The VA also offers add-ons like Aid & Attendance for survivors needing care, and those extra payments are tax-free as well. Again, no 1099 forms are issued for VA pensions because they’re exempt.

Accrued Benefits (Unpaid Benefits at Death)

When a veteran passes away, there may be VA benefits that were approved or due but not yet paid out before death – for instance, a final disability compensation check or a retroactive award that was in process. These are called accrued benefits. The VA can pay certain eligible survivors any monies owed to the veteran at the time of death. A common example is when a veteran had a pending claim or appeal for increased benefits, and after they die the claim is granted: the accrued retroactive amount can be paid to the surviving spouse or children.

• Who qualifies? Typically the veteran’s surviving spouse is first in line to receive accrued benefits. If no spouse, then surviving children (in equal shares) or dependent parents might qualify. If no eligible survivor is found, the accrued amount generally isn’t paid out (it doesn’t become part of the estate except in very limited cases).

• Tax status: Accrued benefits inherit the same tax-exempt status as the benefit they represent. If the accrued amount was from unpaid disability compensation or pension (both non-taxable by nature), then the payment to the survivor remains tax-free. Even though it might come as a one-time lump sum, it’s not treated as taxable income. For example, if a veteran was owed $20,000 in retroactive VA compensation and it gets paid to his widow after his death, she can receive that $20,000 without any tax liability. (However, interest is generally not paid on VA accrued benefits, so there’s no interest income to worry about either.)

VA Burial and Plot Allowances

To help with funeral and burial costs, the VA offers burial benefits to survivors. These can include a burial allowance (cash reimbursement for funeral expenses) and a plot or interment allowance (for burial plot costs) if the veteran is not buried in a national cemetery. The amounts vary: for example, a service-connected death might qualify for up to around $2,000 in burial reimbursement, whereas a non-service-connected death might warrant a smaller allowance (around $300–$800 range), plus a plot allowance in some cases.

• Who qualifies? The person who paid for the veteran’s funeral and burial can apply for these allowances. Often it’s the surviving spouse; if none, a child, executor, or other family member who handled the arrangements. There are time limits and forms to file (typically within two years of the burial for non-service-connected deaths).

• Tax status: VA burial and plot allowances are not taxable. These payments are considered reimbursements for expenses, not income. Essentially, the government is helping offset a cost, and such reimbursements aren’t treated as taxable income. So if you receive a $2,000 VA burial benefit check, you do not include it on your tax return. There’s no tax “gotcha” when you’re grieving and handling funeral costs – the assistance is provided tax-free. (Note: This VA benefit is separate from the military’s $100,000 Death Gratuity for deaths in service, which is also tax-exempt.)

Each of these VA survivor benefits comes with its own eligibility rules and purposes, but none of them will increase your tax bill. The consistent theme is that the government provides these benefits as relief, not as taxable income. Next, we’ll explore why the law treats them this way, and then look at some interesting nuances, like how these benefits compare to others you might receive.

Why Are VA Survivor Benefits Tax-Free? 🏛️

It might seem surprisingly generous that all these benefits are tax-free. This isn’t by accident – it’s by design. It’s actually a long-standing practice: veterans’ benefits have been exempt from income tax since at least World War I. U.S. law has long exempted veterans’ benefits from taxation as a way to honor military service and sacrifice. Essentially, the government recognizes that payments like DIC or a death pension are compensation or welfare benefits, not ordinary income. Taxing them would undermine the support they’re meant to provide.

Legally, the Internal Revenue Code specifically excludes veterans’ benefits from gross income. (For example, sections 104 and 134 of the Internal Revenue Code explicitly exclude compensation for service-related injuries or death from taxation.) The IRS’s own publications note that VA survivor benefits aren’t taxable. For example, IRS Publication 525 (which covers taxable and nontaxable income) explicitly lists VA disability and death benefits as non-taxable. These include DIC, Survivors Pension, and similar payments to survivors. In other words, Congress has written into law that these benefits shall be delivered tax-free.

The rationale is straightforward: Financial relief for grieving families shouldn’t be clawed back by taxes. Think about it – a surviving spouse is given a monthly DIC benefit because their loved one died due to military service. Taking a portion of that in taxes would contradict the very purpose of the benefit. Similarly, a death pension often goes to elderly widows or widowers on limited incomes; taxing that small pension would just put them back in financial hardship, defeating the point.

Another reason is consistency with how veterans’ disability compensation is treated. Veterans’ disability payments are non-taxable, so when that compensation continues to a survivor (as in DIC), it remains non-taxable as well. The same holds for reimbursed expenses: if the VA refunds you for burial costs, it’s not considered income, just like an insurance payout wouldn’t be.

Do states ever tax these benefits? In general, no. State income tax codes usually start with federal taxable income; since VA survivor benefits never enter federal taxable income, states don’t tax them either. Many states also have their own laws explicitly exempting veterans’ benefits to drive the point home. So whether you live in California, Texas, New York or anywhere in between, your VA survivor benefits are safe from state income tax as well. (Always check your specific state’s rules, but virtually all follow the federal lead on this matter.)

In short, the tax-free status of VA survivor benefits is well-established policy. It’s rooted in the principle that the nation’s gratitude shouldn’t come with a tax bill attached. Now that we’ve covered the legal rationale, let’s explore some practical scenarios to see how this plays out and compare these benefits to other common sources of survivor income.

Real-Life Scenarios: How Taxes (Don’t) Affect VA Survivor Benefits

It’s helpful to look at real-world scenarios that families of veterans might encounter. Below is a table of three common situations involving VA survivor benefits and their tax outcomes:

As you can see, the VA-provided benefits themselves stay tax-free in every scenario. Only other types of income (like Social Security or SBP from the military’s retirement system) might generate a tax bill.

Example: Jane is a 68-year-old widow of a Vietnam veteran. She receives $1,562/month in DIC and $1,400/month in Social Security survivor benefits based on her late husband’s work record. Jane has no other income. For tax purposes, her DIC ($18,744 a year) is completely ignored as tax-exempt. When determining if her Social Security is taxable, the IRS looks at half her Social Security ($8,400) plus any other taxable income. Since DIC isn’t taxable income, that calculation comes out to just $8,400. This is below the base amount ($25,000 for single filers) where Social Security would start being taxed. Result: Jane pays $0 in federal income tax on both her DIC and Social Security benefits for the year. (Even if Jane had some other income, the DIC portion would still not count against her.)

Now, consider Mark, whose late wife was a retired Army Colonel. Mark gets a $1,500/month SBP annuity from the DoD and also qualifies for DIC at $1,562/month since his wife’s death was due to a service-connected condition. SBP, as a taxable annuity, means Mark will get a 1099-R form each year for the $18,000 he receives annually and must report that as income. His DIC (~$18,744 per year) comes tax-free, with no tax forms. Mark will pay income tax on the SBP money (according to his tax bracket), but the DIC does not increase his taxable income.

What about dependent children? Surviving children of a fallen service member might receive DIC (if there’s no surviving spouse, or in addition to a surviving spouse in some cases) or an SBP annuity designated for the child. The same rules apply: DIC to a child is not taxed. If a child is the beneficiary of an SBP annuity, those annuity payments are taxable to the child (or to the guardian managing the child’s finances). In the past, children’s SBP income was taxed at high “trust” rates under the so-called “Kiddie Tax,” but a 2019 law (the Gold Star Family Tax Relief Act) changed it so that a child’s survivor benefits are taxed at the child’s parent’s rate instead. This significantly reduced the tax burden on Gold Star children receiving taxable survivor annuities. Crucially, that law didn’t need to change DIC at all – DIC was already tax-free for children, just as it is for spouses.

By comparing these situations, it’s clear that VA survivor benefits consistently provide tax-free support, whereas other survivor benefits (like Social Security or military SBP) can introduce taxable income. Now that we’ve explored these comparisons, let’s weigh the overall pros and cons of receiving tax-free survivor benefits.

Weighing the Pros and Cons ⚖️

Are there any downsides to receiving tax-free benefits? Largely, having tax-exempt income is a positive, but let’s briefly weigh some pros and cons in context:

As you can see, the “pros” heavily outweigh the cons for those who are eligible. Tax-free income is obviously beneficial for the recipient. The considerations on the right aren’t really drawbacks of the benefits themselves, but things to be aware of (for example, a surviving child’s college financial aid application might count the VA pension they receive, even though it’s not taxed). Overall, VA survivor benefits being tax-free is a big advantage in providing financial stability.

Common Mistakes & Misconceptions to Avoid 🚫

Despite clear rules, some survivors or even tax preparers can slip up when handling these benefits. Here are a few common mistakes to watch out for:

• Mistake 1: Reporting VA survivor benefits as taxable income. Because most retirement pensions or insurance payouts are taxable, people sometimes assume their VA survivor benefit must be reported on their tax return. In reality, you should NOT list DIC, Survivors Pension, or similar VA payments as income on your 1040. Doing so can lead to overpaying taxes. For example, a widow might mistakenly add her $15,000 VA pension to her income on TurboTax, not realizing it’s tax-exempt – resulting in an unnecessary tax bill or reduced refund.

• Mistake 2: Not reporting other survivor benefits that are taxable. The flip side of the above: a survivor hears “all survivor benefits are tax-free” and wrongly believes nothing needs reporting. This can be an issue if they receive things like a military SBP annuity or Social Security benefits. Reminder: SBP annuities are taxable and do come with a 1099-R; Social Security may be partly taxable. Only the VA-paid benefits are fully tax-free. It’s important not to ignore 1099 forms for SBP or SSA-1099 for Social Security, even as you exclude VA benefits.

• Mistake 3: Assuming your state might tax the benefit even if the feds don’t. As discussed, states follow the federal treatment for VA survivor benefits. Occasionally, survivors worry that their state will somehow tax their DIC or VA pension. Generally, this is not the case. Including your VA benefit on a state return when it wasn’t on your federal return is an error. It can cause your state to think you have more taxable income than you do.

• Mistake 4: Waiting for a tax form (1099) that never arrives. The VA does not send out 1099s for DIC or survivor pension payments, because they are not taxable. A common misconception is checking the mail or the VA website in January for some “tax statement” about your survivor benefits. Don’t waste time looking – it doesn’t exist. The award letters and monthly statements you get from VA are for your records, but there’s no IRS form since the income isn’t reported.

• Mistake 5: Not informing your tax preparer or accountant about the nature of the benefit. If you use a professional tax service, make sure they know that your benefit is a VA survivor benefit. Occasionally, an inexperienced preparer might see regular deposits or an award letter and mistakenly categorize it as taxable pension income. Provide them any VA documentation that clearly states the benefit type, so they handle it correctly (usually by excluding it entirely from the return). A good clue is that VA survivor benefits often come via the VA’s payment system, not from an employer or insurance company, and have no tax withholding – all signs that it’s tax-free.

By being aware of these pitfalls, survivors can avoid headaches and ensure they only pay the taxes they truly owe (and not a penny more). When in doubt, remember: if the income is from the VA as a survivor benefit, it’s almost certainly not taxable. (On the other hand, if you invest those VA payments and earn interest or dividends, those earnings would be taxable separately – but the VA benefit itself remains tax-free.)

In summary, VA survivor benefits deliver crucial financial support without any tax strings attached. This tax-free treatment reflects a national commitment to care for veterans’ families. Whether you’re a widow navigating finances, a dependent child planning for college, or a tax professional advising a military family, understanding these rules means one less thing to worry about at tax time. You can focus on healing and honoring your loved one’s memory, knowing the IRS won’t diminish the benefits provided for your well-being. 🇺🇸

Frequently Asked Questions (FAQ)

Are VA survivor benefits taxable by the IRS?
No. VA survivor benefits (like DIC or a Survivors Pension) are not considered taxable income by the IRS. You do not need to pay federal income taxes on these payments.

Do I have to report my VA DIC or death pension on my tax return?
No. You do not have to list VA Dependency and Indemnity Compensation or a VA Survivors Pension on your federal or state tax return, because these benefits are completely tax-exempt.

Will I receive a 1099 tax form for VA survivor benefit payments?
No. The VA does not issue a 1099 for survivor benefits like DIC or death pension. Since these benefits are tax-free, you won’t receive any tax forms for them.

Does a child have to pay taxes on VA survivor benefits they receive?
No. VA survivor benefits paid to children (such as DIC for a minor) are tax-exempt. A child or their guardian does not include these VA payments as taxable income.

Are VA survivor benefits taxable at the state level?
No. States also exempt VA survivor benefits from income tax. In almost all cases, you will not pay state taxes on DIC, death pension, or similar VA survivor payments.

Can VA survivor benefits make my Social Security benefits taxable?
No. VA survivor benefits are not counted as income for determining taxable Social Security. Receiving tax-free DIC or pension won’t cause your Social Security benefits to become taxable.

Is the military death gratuity ($100,000) taxable income?
No. The $100,000 death gratuity paid to military survivors is exempt from tax. Families receive the full amount without any taxes owed.

Are life insurance proceeds from the VA (SGLI/VGLI) taxable?
No. Life insurance payouts, including Servicemembers’ or Veterans’ Group Life Insurance benefits, are not taxed. The beneficiaries receive the insurance money entirely tax-free.