Recently, there have been letters circulating that are leading many retirees to believe that a substantial portion of their military pay is non-taxable and as a result, they should file amended returns to obtain refunds.These letters state that veterans with a disability rating of 20% or more are entitled to exclude a portion of their income. More specifically, someone with a 70% disability rating would only owe taxes on 30% of their pension income, someone with a 90% disability rating would only owe taxes on 10% of their pension, and so forth.This is not true.Military retirement pay is fully taxable. Whereas, VA disability payments are not.Prior to 2004, if a retiree was awarded a VA disability rating, in order to actually receive a payment from the VA they had to agree to waive the same amount of their military retirement pay. This is referred to as the VA waiver, or VA offset.For example, if a retiree was receiving $2,500 a month in military retirement pay and was notified that they could receive $500 per month from the VA for disability, the VA waiver amount would be $500. Since 2004, however, their military retirement pay has been reduced to $2,000 per month (taxable), and they receive the $500 disability payment from the VA.In our example, let's say it took three years to get the VA disability percentage, and let's assume that the VA rating was also retroactive to the date of retirement. Our retiree would have been receiving $2,500 per month for three years in fully taxable military compensation, when $500 of that should have been tax free. The IRS allows the retiree to amend any open tax returns -- normally the last three years -- to make that adjustment.After 2004, retirees with disability ratings greater than 50% are no longer required to waive a portion of their retirement pay in order to receive disability pay, allowing them to double dip. However, the retirement pay remains fully taxable.The letters that have been circulating are misleading veterans by conflating military retirement pay and VA disability pay. These are two separate benefits, with different tax treatment.Retirement is fully taxable income; VA disability is non-taxable. Taxpayers need to be fully aware whether payments they receive are for retirement or disability. Retirement payments will be generated by the Defense Finance and Accounting Service, whereas disability is paid out by the U.S. Department of Veterans Affairs.For answers regarding whether payments are taxable or for any information, call the Legal Assistance Office at (502) 624-2771.