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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.
VA pensions, which are administered based on years of service, are considered taxable income. Also, be careful not to confuse VA benefits with other disability payments, such as Social Security disability benefits, which are sometimes taxable if you earn income in addition to your monthly disability benefit amount.elated Payments. In addition to your VA benefits, other types of payments made to you that relate to your disability are nontaxable as well. For example, VA benefits from a public welfare fund and workersâ compensation payments are not taxable and should not be listed on your return.