Withholdings, Offsets, and Recoupments
Your VA disability compensation may be subject to various withholdings and offsets. One offset is the VA waiver for military retirees. If you receive both military retirement pay and VA disability compensation, you generally cannot receive the full amount of both. Most retirees must waive a portion of their retirement pay equal to their VA compensation. The main exception is Concurrent Retirement and Disability Pay (CRDP) under 10 U.S.C. 1414. If you are entitled to retired pay and your combined VA rating is 50 percent or more, CRDP lets you receive both, with limits for disability retirees: if you were retired under chapter 61 of title 10 with fewer than 20 years of creditable service, CRDP does not apply to you at any rating, and if you were retired under chapter 61 with 20 or more years, part of your retired pay can still be offset.
Another common withholding is severance pay recoupment, under 38 CFR 3.700(a)(3). If you received military disability severance pay when you separated from service, VA will withhold from your disability compensation until it has recouped an amount equal to the severance pay. If the severance pay was paid on or before September 30, 1996, VA recoups the total amount. If it was paid after September 30, 1996, VA recoups the total amount less the federal income tax withheld from it. This can take months or even years depending on the severance amount and your monthly VA payment rate.
Which compensation is withheld depends on when your entitlement to compensation was established. If it was established on or after September 15, 1981, VA recoups from your compensation for any disability incurred or aggravated by service before you received the severance pay, not only the conditions the severance pay was granted for. If it was established before September 15, 1981, compensation for a disability other than the one the severance pay was granted for is not reduced. Before VA's first regular schedular compensable rating, recoupment is at the full monthly rate for the disabilities the severance pay was granted for; after that rating, the monthly recoupment cannot be more than the monthly compensation payable for that degree of disability.
There is also a combat-related exception. If you separated under chapter 61 of title 10 on or after January 28, 2008, VA makes no recoupment of severance pay for disabilities incurred in line of duty in a combat zone or incurred during performance of duty in combat-related operations as designated by the Department of Defense.
Other separation payments have their own rules. Separation pay is recouped from compensation under a similar rule, including the September 30, 1996 tax rule (38 CFR 3.700(a)(5)(i)). Special separation benefits (SSB) paid on or after December 5, 1991 are recouped less the federal income tax withheld (38 CFR 3.700(a)(5)(iii)). Voluntary separation incentive (VSI) payments work the other way: under 10 U.S.C. 1175(e)(4), an amount equal to the VA compensation you receive at the same time is deducted from your VSI payments.
Additionally, if you were previously overpaid by VA, future payments may be reduced until the overpayment is recovered. You can request a waiver of overpayment recovery if repayment would create financial hardship.
Note: This article references sections of the VA's M21-1 Adjudication Procedures Manual. The VA periodically reorganizes the M21-1 and section numbers may have changed since this article was written. For the most current section references, visit the VA's public M21-1 Web Automated Reference Material System (WARMS).