Is VA Aid and Attendance a Taxable Benefit?

The Department of Veterans Affairs provides Aid and Attendance as a supplemental payment to its standard pension for qualified veterans and their surviving spouses who need financial help for daily care. This can include assistance with activities like eating, bathing, or dressing. The purpose of the payment is to help cover the costs of long-term care, whether that care is provided at home, in an assisted living facility, or in a nursing home.

Federal Tax Treatment of Aid and Attendance

The Internal Revenue Service (IRS) does not consider VA Aid and Attendance benefits to be taxable income. The IRS classifies all benefits administered by the Department of Veterans Affairs, including disability compensation and pension payments like Aid and Attendance, as non-taxable.

Because these benefits are tax-free, you do not need to report them as income on your annual federal tax return, Form 1040. The exemption is automatic and no special forms are needed to claim it. You should keep the official VA award letter detailing the benefit amount for your records as proof of the funds’ tax-free status.

The benefit’s tax-free status also affects the medical expense deduction. Tax principles prevent the deduction of expenses that were paid for with tax-free funds. For example, if an individual incurs $20,000 in home health care costs and receives $12,000 in Aid and Attendance benefits to help pay for it, only the remaining $8,000 of out-of-pocket costs can be considered for the medical expense deduction on their tax return.

State Tax Implications

The tax-free status of VA Aid and Attendance benefits extends to the state level in most cases. Most states align their income tax regulations with federal law, so if income is not taxed by the federal government, it is not taxed by the state. As a result, these VA payments are generally not subject to state or local income taxes.

While this alignment is common, state tax laws are subject to change and can have unique provisions. A benefit recipient should verify the specific tax treatment with their state’s department of revenue or a qualified tax professional to ensure compliance.

Impact on Other Financial Calculations

The treatment of Aid and Attendance for tax purposes differs from how other government agencies view it. While the IRS considers the benefit non-taxable, it may be treated as “countable income” for determining eligibility for other means-tested programs. Programs such as Medicaid or subsidized housing have their own rules for what counts as income.

Agencies that administer these benefits look at a household’s total financial resources to determine if an applicant qualifies. In many cases, the full VA pension, including the Aid and Attendance supplement, will be included in this calculation. This can place an individual over the income threshold for another program, even though the VA money is not taxed.

Tax Considerations for Caregivers

The tax implications shift when Aid and Attendance funds are used to pay a caregiver. If a recipient hires a non-spouse caregiver, such as a child or professional home health aide, those payments are considered taxable income to the person providing care. The caregiver is responsible for reporting this income to the IRS on their tax return.

The individual paying for care may also have tax-related duties. If the caregiver is an independent contractor and paid more than the annual reporting threshold of $600, the payer may be required to issue Form 1099-NEC. This form reports the total amount paid to the caregiver during the year to both the caregiver and the IRS.