5 Tax Breaks Veterans Miss Because Their Tax Preparer Doesn't Ask About Their DD-214

Most tax preparers are generalists, and there's nothing wrong with that — most returns don't need a specialist. Military retirement pay isn't like most returns, though. It comes with its own set of rules, forms, and elections that simply don't come up for the average client, which means they don't come up for the average preparer either. If nobody asks, nobody catches them.

Here are five that we see missed most often.

1. The state exemption on retirement pay itself

This is the big one. A large majority of states now offer either a full or partial exemption for military retirement pay, but the exemption usually isn't automatic — it has to be claimed correctly on the state return, and the rules (dollar caps, age thresholds, phase-in schedules) vary widely and change often.

A preparer who doesn't work with military retirees regularly may not know your state's current rule exists at all, let alone how to apply it. This single item is often worth more than everything else on this list combined.

2. Choosing CRDP over CRSC — or vice versa — without running the numbers

If you're eligible for both Concurrent Retirement and Disability Pay and Combat-Related Special Compensation, you make an annual choice between them. CRDP is taxable; CRSC is treated as VA disability and is tax-free.

A preparer who doesn't know to ask which one you're on — or doesn't understand the tradeoff — can't help you evaluate whether you're on the better option for your after-tax income. This is a decision worth revisiting every open season, not just setting once and forgetting.

3. Treating VA disability compensation correctly

VA disability compensation is never taxable, at the federal or state level. That part is usually handled correctly.

What's missed more often is the downstream effect: a disability rating change can affect CRDP eligibility or amount, and that ripple effect only gets caught by someone who knows to look for it.

4. SBP premiums lowering your taxable retired pay

If you elected Survivor Benefit Plan coverage, your premiums are typically deducted before tax, which means the taxable amount on your 1099-R is already lower than your gross pension.

That's correct and expected — but it also means the number needs to be read in context. Preparers unfamiliar with military pay statements sometimes ask unnecessary questions about "missing" income, or worse, don't recognize when a 1099-R looks wrong for your situation because they don't know what right looks like.

5. Coordinating withholding across active duty, retired pay, and a new civilian job

The year you retire, you may have income from active duty, retired pay, and a new employer, each with separate default withholding that isn't coordinated with the others.

Generalist software catches obvious errors; it doesn't catch a withholding mismatch across three income sources that each look fine individually. This is one of the most common reasons military retirees are surprised by a tax bill in their transition year — not because they did anything wrong, but because nobody looked at the combined picture.

Why this happens

None of these are exotic tax strategies. They're specific to military and veteran pay structures, and if a preparer files a handful of these returns a year instead of dozens, it's easy for the details to fall through the cracks — not from carelessness, but simply from unfamiliarity.

The forms all look routine. The context is what's missing.

What to ask your preparer

If you want a quick gut check on your current return, ask directly:

• Does my state exempt military retirement pay, and are we claiming it correctly?

• Have we compared CRDP and CRSC for my situation this year?

• Is my withholding coordinated across all my income sources?

If those questions get a confident, specific answer, you're in good hands. If they get a pause, it might be worth a second opinion.

Want a second look at a past return, or help getting this year's set up correctly from the start? Schedule a consultation — we work exclusively with veterans and military retirees, so these aren't edge cases to us.

This post is for general educational purposes and isn't personalized tax advice. Please consult a qualified tax professional about your specific situation.