VA compensation is tax-exempt, while military retired pay is taxable. Veterans’ benefits are paid by the Department of Veterans Affairs under Title 38 of the US Code, and military retired pay is paid by the Department of Defense Under Title 10 of the same code.

Under 38 USC § 5301, titled Nonassignability and exempt status of benefits:

“(a)(1) Payments of benefits due or to become due under any law administered by the Secretary shall not be assignable except to the extent specifically authorized by law, and such payments made to, or on account of, a beneficiary shall be exempt from taxation, shall be exempt from the claim of creditors, and shall not be liable to attachment, levy, or seizure by or under any legal or equitable process whatever, either before or after receipt by the beneficiary.”