You do not claim these amounts, it is non taxable unearned income. You will receive the payed owed you in one lump sum (if you have not already) and continue to receive a monthly payment. Trust me, been doing this for many years with the VA stuff ;=)

Ruchele, Thanks for your response. However, I'm still not sure what line on the 1040 or if I use a schedule form to file VA compensation. Do I subtract the compensation amount from the total that was sent on my 1099-R from the D.O.D. that shows the total amount I received for retirement. When I got approved for the VA compensation for disability, that was on Dec. 10th. It was approved for May thru Dec. and then to continue on. All I have for proof is the Disibilty approval package sent by the VA. In the package it shows the amount I will be compensated for starting in May. The VA said I will start receiving a check from them Feb. 2008 and that my retirement check will be less the amount of the VA compensation. The VA did state that the benifit for 2007 is tax exempt. Still not sure what to do. I have always filed using TuboTAx on line and I'm hoping this can be resolved thru them. Please advise.

You do not report VA disability compensation anywhere on the 1040. You will need to get an amended 1099R from DFAS to reflect the difference in retired pay, which is taxable, showing the amount of retired pay waived for VA compensation.

Example: A vet receives $2000/month retired pay for year 2010. In 2011, the VA awards this vet 30% disability, with an effective date of 1 Jan 2010. This award takes $20/month from the vets retired paycheck. However, the vet paid taxes on the entire $24,000 of retired pay in 2010, when in fact, $240 of that amount was nontaxable.

Come 2014, this will all be a nonissue, as concurrent receipt will be completely phased out. If you filed your taxes without adjusting for the portion that was VA compensation, no big deal. Just file an amended return (1040X). You can amend a return up to three years back.