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VA disability compensation is nontaxable to the veteran or survivor and is not reported on any tax forms. The veteran will receive a report showing any adjustments due to cost-of-living adjustments (COLA) or other changes affecting the monthly benefit during the year.hus, for the 2012 tax year, the adjustment is $2,294 ($1,614 ($538 3) + $680 ($340 2)). (3) The adjustment is reported on the Other income line of Form 1040 as a negative number with the notation VA Disability Adjustment See Attachments included on the dotted line.
Facts About VA Disability Compensation Disability compensation for veterans is not subject to federal or state income tax. About 80 percent of veterans receive their VA benefits by direct deposit, which VA recommends for security reasons. Veterans are rated at increments of 10 percent reflecting degree of disability. As federal