Understanding how VA disability payments affect military retired pay can be a challenge. Here are some things to keep in mind to make it less confusing!
Military retirees with a VA service-connected disability rating of 10 percent or higher are eligible to receive a monthly compensation check from the VA. Military retired pay is essentially a pension payment based on a Veteran’s years of service and rank at the time of retirement. Military retired pay is subject to federal taxes, and is also taxed by most states. VA disability compensation not taxed by the federal government.
Prior to 2008, it was unlawful to receive military retired pay and VA disability compensation payments at the same time, forcing military retirees to choose which pay to receive. In 2008, Congress created Combat Related Special Compensation (CRSC).
CRSC is a tax-free monthly compensation designed to replace some or all of military retired pay that is withheld because the military retiree elected to receive VA disability compensation. CRSC payments cover disabilities that are confirmed to be related to combat, including “disabilities incurred in actual combat, while engaged in hazardous service, in the performance of duty simulating war, training for combat or as a result of an instrumentality of war.” The amount received is directly related to the evaluation of the combat-related disability, but it cannot exceed the amount of withheld retired pay.
Military retirees qualify to receive CRSC if they have a combat-related VA disability rating of 10 percent or higher, and if their retired pay is reduced by a VA waiver. This includes those who were retired with less than 20 years of service under Chapter 61 United States Code (medically retired) or the Temporary Early Retirement Authority.
Military retirees should be aware that the Barring Act prevents the federal government from paying more than six years of past benefits. To receive a full CRSC entitlement, military retirees must file their CRSC claim within six years of the date of any VA rating decision that made them eligible for CRSC, or the date they became entitled to retired pay, whichever is more recent.
Some military retirees may also be eligible to receive benefits under Concurrent Retired and Disability Pay (CRDP), which allows those with a VA service-connected disability of 50 percent or more to receive both their military retired pay and VA disability compensation. However, military retirees cannot receive benefits simultaneously under both the CRSC and CRDP; they must choose one program. If eligible for both programs, retirees may change their elections when their individual circumstances change or during the annual open season. The Defense Finance and Accounting service sends letters to retirees eligible for both programs each December. Requests to change programs must be submitted by the end of January of each year.