Congress moves to exempt all veteran retirement pay from federal income tax
S. 1108 — Tax Cuts for Veterans Act of 2025 · Filed by Pete Ricketts (R-NE) · 2 cosponsors · Introduced Mar 25, 2025 · Referred to committee
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What it does
This bill excludes all military retirement pay, disability compensation, and related benefits from federal income taxation for current and former members of the armed forces and uniformed services. Veterans would no longer owe federal income tax on retirement pensions, disability payments, or survivor benefits, creating a permanent tax exemption for these income streams.
Why we flagged it
The bill's sole operative mechanism is amending the Internal Revenue Code to exclude military retirement and disability income from gross income taxation. It is a straightforward tax policy change with no hidden riders or misdirection.
What the text implies
- Reduces federal tax revenue with no offsetting revenue source identified; fiscal impact depends on number of affected veterans and average benefit amounts, which are not quantified in the bill text.
- May create administrative complexity for the IRS in distinguishing taxable vs. non-taxable uniformed services income, particularly for individuals with mixed income sources.
The full analysis lists 3 implications of this text.
Who stands to gain
military retirees; disabled veterans; survivor beneficiaries of deceased service members