By now you have probably realized that many of our clients are former members of the US Military. As such most of them receive VA benefits. Their tax treatment has already been discussed in a previous article. However, an often over-looked tax aspect about VA benefits, is the VA rating that goes hand in hand with those cash benefits.
Your VA disability rating matters because under German tax law certain disability ratings come with additional deductions under German tax law – some are standard, some are itemized. While it won’t make or break your return, we take the position that you should try to get as much benefit as possible from your service-related disability!
So, we always try to get your VA disability rating accepted on the German tax side and we have had great success there. It is important to notice that there is no legal precedence out there about foreign disability ratings. Also, German tax offices are used to dealing with German disability cards, so a VA rating is nothing they see often. However, what needs to happen is that you include your VA rating in the tax return in the same way you would with a German rating. Usually, a German tax office will then ask for documentation thereof.
At this point it is not enough to just provide the frontpage of your VA letter – again, it is a foreign rating and it does not come by way of the standard German disability card. However, there are several court rulings (also at the Supreme Court level) which say that a German disability card is not necessary to document a disability. According to the courts it suffices to have documentation by an accepted medical services provider of certain conditions which impair you to an effect that it is “disabling”. So, any response letter to the German tax office needs to highlight that. Ideally your VA letter lists your conditions and the partial ratings, as well as the accumulated total rating. Along with your DD214 in many cases this makes for a compelling case where we managed to obtain additional tax breaks for our US clients.
Update June 2026: We have covered VA benefits extensively in several articles. However, some German tax offices have argued that those benefits are not as tax irrelevant as they are under US law, and would need to be considered for tax rate purposes (=Progression), effectively putting people’s German tax base in a higher tax bracket due to the circumstance that they are drawing VA benefits. At taxpatation we have always thought this was unsubstantiated, grossly wrong and put up a fight over it. On April 23 the German Tax Supreme court has confirmed this stance and ruled that the VA benefits are NOT to be considered even for tax rate purposes. Effectively this means that you should make prosaic mention of them but you will not see any tax effect at all. Albeit the ruling was not for one of our clients we are happy that it mirrored a position we have long been taking and fighting for separately with various tax offices! We would like to point out though that the ruling pertained to actual VA disability benefits, not DIC ones, but there is no reason the latter should see any other treatment. However, we continue to advice that there should be at least a prosaic mentioning, so one can fight it out in the open with the tax office if need be. Please let your taxperts know if you are wondering whether your VA or DIC benefits are being treated properly – as always, we are happy to brawl on your behalf!
