Tax Cuts for Veterans Act of 2025
The Tax Cuts for Veterans Act of 2025 would make all military retirement and related benefits entirely tax-free under federal income tax. Specifically, it amends the Internal Revenue Code to exclude from gross income (a) all retired or retainer pay for members or former members of the armed forces, and (b) certain disability, combat-related, or death-related compensation paid under various military and veterans programs. The bill also includes special rules for certain uniformed services retirees other than those in the armed forces, a repeal and conforming amendments to related provisions in Title 10 and the tax code, and an effective date that applies to taxable years beginning after enactment. In short, it is a broad tax cut targeted at veterans and uniformed service retirees, reducing federal tax revenue by removing taxation on their retirement benefits.
Key Points
- 1Full exclusion from federal income tax for all military retirement pay and related benefits for members and former members of the armed forces.
- 2Expansion of the exclusion to certain uniformed services retirees (other than armed forces) with a special rule that phases in the exemption based on “consideration for the contract,” defined by historical reductions in retirement pay and certain deposits.
- 3Conforming amendments: repeal of Section 1403 of Title 10, adjustments to annuity taxation (Section 72(n)), and clerical/table-structure changes to reflect the new naming and scope (Sec. 122 renamed to cover “Certain uniformed services retirement pay and related benefits”).
- 4Effective date: the changes apply to taxable years beginning after the enactment date.
- 5Tax code modernization: redefines eligibility and how retirement benefits are treated for tax purposes across both armed forces and other uniformed services.