VA disability is not taxed federally or locally. You do not have to be injured on active duty, but can collect if your disability was caused by your service and is approved by the VA. It's a very long and arduous process. It took me over two years to reach the benefit stage. The Affordable Care Act bases subsidies on taxable income only. Military pensions are taxed federally, as they are considered ordinary income, and in some states, taxed locally, but not in N.J.