Veteran Survivor Tax Implications: What's Taxable, What's Not, and Filing After Death

After a veteran's death, money arrives from several different sources — DIC, Survivors Pension, SGLI, SBP, Social Security, and possibly accrued VA benefits. Some of it is tax-free. Some of it isn't. And the veteran's final income tax return needs to be filed, often by someone who has never dealt with the IRS on the veteran's behalf.

Here's what's taxable, what isn't, and how to handle the returns.

Tax-Free Survivor Benefits

These payments are completely exempt from federal income tax:

Dependency and Indemnity Compensation (DIC): The $1,699.36 monthly base rate (2026) and all add-ons — Aid and Attendance, Housebound, dependent child increases, the transitional benefit — are entirely tax-free. You do not report DIC on your federal return.

Survivors Pension: Also tax-free at the federal level. The needs-based monthly pension payment is not included in gross income.

SGLI and VGLI life insurance proceeds: Life insurance death benefits paid under Servicemembers Group Life Insurance or Veterans Group Life Insurance are tax-free to the beneficiary, regardless of the amount. The maximum SGLI payout of $500,000 arrives with no federal tax obligation.

VA burial allowances: The burial, plot, and transportation reimbursements from VA Form 21P-530EZ are not taxable income.

Accrued benefits: One-time payments of benefits owed to the veteran at death are tax-free to the survivor.

Taxable Survivor Benefits

Survivor Benefit Plan (SBP) annuity: The 55% annuity from DFAS is subject to federal income tax. You'll receive a 1099-R each year showing the taxable amount.

Social Security survivor benefits: Taxability depends on your total income. If Social Security is your only income source, it's likely not taxable. But if your combined income (adjusted gross income plus nontaxable interest plus half of your Social Security benefit) exceeds $25,000 (single) or $32,000 (married filing jointly), up to 85% of your Social Security benefit becomes taxable. This threshold is not indexed for inflation, so it catches more people every year.

Military retired pay received before death: Any retired pay deposited to the veteran for the months before death is taxable on the veteran's final income tax return.

Thrift Savings Plan distributions: If the veteran's TSP balance is distributed to a beneficiary, the taxable portion depends on the type of TSP account. Traditional TSP distributions are fully taxable. Roth TSP distributions are tax-free if the account was held for at least five years.

Filing the Veteran's Final Tax Return

The veteran's final Form 1040 covers January 1 through the date of death. If you were married to the veteran at the time of death, you can file as Married Filing Jointly for the year of death. This usually produces a lower tax bill than filing separately.

You remain eligible for the Qualifying Surviving Spouse filing status (formerly "Qualifying Widow(er)") for the two tax years following the year of death, provided you have a dependent child and do not remarry. This gives you the same standard deduction and tax brackets as Married Filing Jointly.

Sign the veteran's final return as "Filing as surviving spouse" next to the signature line. If a personal representative has been appointed by the court, they sign instead.

Reporting the Death to Social Security

Contact the Social Security Administration at 1-800-772-1213 to report the veteran's death. The funeral home may have done this already — ask them to confirm. Social Security stops the veteran's monthly payment (the payment for the month of death must be returned if it was already deposited) and may trigger a one-time lump-sum death payment of $255 to the surviving spouse.

If you're eligible for Social Security survivor benefits, apply at the same time. You can receive a survivor benefit as early as age 60 (50 if disabled), but the amount is reduced for early claiming. At full retirement age, you receive 100% of the veteran's benefit amount.

The Veteran's Death Benefits & Survivor Claims toolkit includes a benefits summary worksheet that identifies which payments are taxable and helps you prepare for tax season without missing deductions or overpaying on tax-exempt income.