I frequently receive questions from veterans who want to know how or why the VA can take money from their VA service-connected disability compensation. Many veterans express disappointment or a lack of understanding when this happens. And I can understand that. After all, they receive this benefit because their health was made worse during, or because of, their military service. Unfortunately, there are times when their disability compensation can legally be reduced or withheld.
The primary reasons this may happen include a withholding, recoupment of your pay, an offset, or a reduction. Let’s look at some of the major reasons these things might happen.
Table of Contents
- VA Disability Compensation Pay Withholding
- VA Disability Compensation Recoupment
- Disability Separation Pay
- Voluntary or Involuntary Separation Pay:
- Separation pay from active duty, but later retired from Active Duty, Guard, or Reserves:
- Cannot Receive VA Disability Pay and Military Pay at Same Time
- VA Disability Pay Offset
- Reduction in VA Disability Rating
VA Disability Compensation Pay Withholding
There are several times when your VA disability compensation can be withheld. Some situations that don’t need much explanation include when there is an error in your award, an error the amount you were paid, if there was fraud involved, or if you otherwise owe a debt to the VA. There may be stipulations on when and how much can be withheld from your payments. But we’re not going to try and define each of those situations as most of these cases will be situational and will require one on one assistance through the VA or through a Veterans Service Organization. If you run into this situation, please get in touch with the VA or a VSO for specific guidance.
VA Disability Compensation Recoupment
This situation is probably the most misunderstood. In short, the VA is required by law to withhold your disability compensation pay if you received separation pay when you separated from the military, then are later awarded disability compensation. This includes medical separation pay (Chapter 61 separations) and voluntary or involuntary separation pay.
Disability Separation Pay
The VA is required by law to withhold disability compensation payments for servicemembers who received a disability severance payment when they separated from the military (Chapter 61), if the VA disability compensation is for the same disability. This is to prevent a veteran from receiving duplicate benefits.
Exception: The VA will not deduct compensation pay if the military disability severance pay was received 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 (DoD). (Note: this must be a Line of Duty designation by the DoD to be waiverable – this is related to the CRSC rating mentioned above). This exception applies to members who were separated from the Armed Forces under Chapter 61 of title 10, United States Code, on or after January 28, 2008.
- Source: 10 U.S. Code § 1212.
Voluntary or Involuntary Separation Pay:
Federal law also requires the VA to withhold compensation pay for veterans separation pay, severance pay, and readjustment pay, less any federal taxes already paid.
Separation pay from active duty, but later retired from Active Duty, Guard, or Reserves:
Members who receive separation pay, but later rejoin the military and earn a retirement (Active, Guard, or Reserves) would also have part of their retirement pay withheld until the amount of their separation pay had been recouped. If the veteran is also a disabled veteran, then DFAS and the VA would coordinate the recoupment of the separation pay.
Note regarding recouped funds and taxes: The VA will only recoup the after-tax amount from your disability payments (for federal taxes already paid). You have already paid taxes on the amount of severance pay received, so the VA will not withhold beyond the amount of money you actually received.
Cannot Receive VA Disability Pay and Military Pay at Same Time
Finally, military members who have a VA service-connected disability rating are unable to receive both their military pay and VA disability compensation for the same period. Servicemembers cannot apply for a VA service-connected disability rating while they are still serving in the military. However, it is possible to receive a disability rating and serve again later. This normally occurs for prior service members who go back on duty or with members of the Guard or Reserves.
Here is an article about joining the Guard or Reserves with a VA disability rating. In general, you can expect to need medical waivers to join the military, and you will have to decide your pay.
Military members who have a disability rating and are serving on active duty or are otherwise activated are required to waive their VA pay while they are serving on active duty. Members of the Guard or Reserves must choose which pay they wish to waive. At the end of the year, they will receive a form from the VA in which the member must elect which pay they wish to keep and which pay they wish to waive.
If the member chooses to waive their military pay, they will be required to pay back everything they earned while receiving VA disability compensation. However, most military members earn more through their military pay and choose to waive their VA disability compensation. In this case, the member elects to waive their VA pay, and the VA will withhold their payments for the corresponding number of days in the following year.
VA Disability Pay Offset
Not too many years ago, military retirees who were awarded a VA disability compensation rating were unable to receive both their full retirement pay and their VA service-connected disability compensation. They had to choose which type of pay they wished to receive. Since VA disability compensation is a tax-free benefit, most service members choose to receive their VA compensation and waive the corresponding amount from their military retirement pay.
The law changed in 2004 when the Concurrent Retirement & Disability Pay (CRDP) law was passed. The CRDP laws allowed veterans with a VA disability rating of 50% or greater to receive both their retirement pay and their VA disability compensation concurrently, with no offset or reduction in pay.
Unfortunately, the cutoff was 50% or greater, and veterans with a rating of 40% or lower are still subject to having their retirement pay offset. This is not a reduction in their VA disability compensation but a reduction in their retirement pay. But it’s worth noting in this article to serve as a reference. Here is a full article that explains how VA disability compensation affects military retirement pay.
- Source: 10 U.S. Code § 1414.
Exceptions for retirees with combat-related disabilities: In 2008, Congress passed the Combat Related Special Compensation (CRSC) Benefits program, which replaces VA disability offset for military retirees who have combat related disabilities. Veterans with a combat-related disability rating of 10% or more avoid the VA offset, even if they don’t meet the 50% rating threshold for the CRDP program. This only applies to those disabilities that are considered to be combat-related.
- Source: 10 U.S. Code § 1413a.
Reduction in VA Disability Rating
Finally, the VA can reduce a veteran’s disability rating if they believe it is warranted based on the circumstances or if the veteran fails to attend required medical examinations. There are some built-in protections for servicemembers who have held their rating for a number of years. This article explains how the VA can reduce your disability rating.
There you have it – there are several ways the VA can reduce, recoup, or withhold your VA disability compensation.