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Recoupment of Separation and Severance Pays

Under current Law VA CANNOT pay Disability Compensation to a Veteran who also received certain separation benefits from the Department of Defense (DoD).

The idea being that for the Veteran to get both is equivalent to 'double dipping'. Yes, even if the reason the Veteran was separated was due to reasons other than having a medical basis.

Does it make sense? No, but Congress!

In the end, even if you do have to 'repay' your separation benefits back before you can draw VA disability compensation. You in effect get an interest free loan/cash advance.

Types of Separation Benefits

There are various types of Separation Benefits that have been offered by the DoD throughout the years.

Separation Pay (Modern)

Those separated under 10 U.S. Code § 1174 and served at least 6 years active service, but less than 20 years.

Usually due to:

  • Involuntary separation due to PT failure;

  • Involuntary separation due to H/W failure;

  • Being denied reenlistment due to being too high tenure in grade; or

  • Sole survivorship discharge (this can occur with less than 6 years of service).

Severance Pay (Medical Separation)

Paid to those who go through a Medboard but do not rate at least 30% DoD.

Non-disability severance pay

For those separated under former 10 U.S.C 359, 360, 859, and 860, who involuntarily separated from service, usually due to their failure to meet standards of performance.

Readjustment pay under former 10 U.S.C. 687

Was paid to reserve officers who were involuntarily released after completing at least five years of active service but did not qualify for retirement.

Readjustment pay under former 10 U.S.C. 3814a

Was paid to regular officers below the rank of major who were discharged during a reduction in force.

Reservists' Involuntary Separation Pay (RISP)

Paid to a member the Selected Reserve who has at least 6 years but less than 15 years of service under 10 U.S.C. 12732 (reference (c)) as of the date of discharge from a Reserve Component or involuntary transfer from the Selected Reserve.

NOTE:

  • Reserve Special Separation Pay (RSSP) is NOT subject to recoupment.

Special Separation Benefit (SSB) & Voluntary Separation Incentive (VSI)

Were used to help downsize the military by encouraging servicemembers, who might otherwise face involuntary separation or denial of reenlistment, to separate voluntarily.

IMPORTANT NOTE:

  • VA is NOT responsible for recouping VSI from a Veteran’s disability compensation! It is the DoD's responsibility to recoup the money. However, the VA ain't no snitch and will NOT notify the DoD of any awards to the Veteran.

    • Further, if the DoD has paid the entire amount of VSI the Veteran is owed, the DoD has NO mechanism to recoup that money. UNLESS, the Veteran rejoined the military and became eligible for retirement.

Voluntary Retirement Incentive (VRI)

Payment DoD offers to officers to encourage voluntary retirement when they have served for more than 20 years.

IMPORTANT NOTE:

  • VRI is NOT subject to recoupment.

Voluntary Separation Pay (VSP)

Was paid to servicemembers who voluntarily separated from active duty due to restructuring or a reduction in force.

Recoupment and You

The table below details the situations in which the Veteran is required to 'repay' as well as the amount that is due.

NOTES:

  • Pre-tax amount - entire sum paid to the Veteran.

  • After-tax amount - entire sum paid to the Veteran, after taxes have been taken out.

Type Date received VA Disability Compensation Date received Separation Benefits Amount Recouped
Separation Pay (Modern) N/A On or before September 30, 1996 Pre-tax amount
Separation Pay (Modern) N/A After September 30, 1996 After-tax amount
Severance Pay (Medical) N/A On or before September 30, 1996 Pre-tax amount
Severance Pay (Medical) N/A After September 30, 1996 After-tax amount
Non-disability severance pay Prior to September 15, 1981 N/A None
Non-disability severance pay On or after September 15, 1981 On or before September 30, 1996 Pre-tax amount
Non-disability severance pay On or after September 15, 1981 After September 30, 1996 After-tax amount
Readjustment pay under former 10 U.S.C. 687 Prior to September 15, 1981 N/A 75% of Pre-tax amount
Readjustment pay under former 10 U.S.C. 687 On or after September 15, 1981 On or before September 30, 1996 Pre-tax amount
Readjustment pay under former 10 U.S.C. 687 On or after September 15, 1981 After September 30, 1996 After-tax amount
Readjustment pay under former 10 U.S.C. 3814a Prior to September 15, 1981 N/A None
Readjustment pay under former 10 U.S.C. 3814a On or after September 15, 1981 On or before September 30, 1996 Pre-tax amount
Readjustment pay under former 10 U.S.C. 3814a On or after September 15, 1981 After September 30, 1996 After-tax amount
RISP N/A On or before September 30, 1996 Pre-tax amount
RISP N/A After September 30, 1996 After-tax amount
SSB N/A N/A After-tax amount
VSP N/A On or before September 30, 1996 Pre-tax amount
VSP N/A After September 30, 1996 After-tax amount

Specific Notes on Recoupment of Severance Pay (Medical Separation)

Severance pay has several special considerations surrounding recoupment.

IMPORTANT NOTE:

  • The VA CANNOT withhold more compensation than the Veteran was initially awarded from the VA. Yes the VA, NOT based upon the initial DoD ratings! However there are 2 special cases see below:

Original VA Rating Future Combined Rating MAX Amount Recouped
0% Veteran is being paid at 10% due to having multiple 0% ratings. That 10% pay is NOT subject to recoupment. HOWEVER, if one of those conditions gets a rating themselves of at least 10%. Then the VA can start recoupment.
Temporary 100% 50% after temp 100% ends. 50% pay rate.

In the event the Veteran claims additional disabilities OR their original disabilities at separation get increases. The VA will use one of two following methods to figure out how much money to withhold for recoupment:

  1. Withhold the amount of compensation payable for the severance-pay disability.

  2. Pay the Veteran the amount payable for the non-severance-pay disability, and withhold everything else.

The method selected by the VA will be whichever is leaves the Veteran with the MOST money!

Example 1 (new disabilities):

  • Veteran was separated with a Combined rating of 50%.

  • Veteran later filed new claims that resulted in new 'non-severance pay disabilities' that when combined resulted in a 40% rating.

  • These new ratings combined with the original 'severance-disabilities' resulted in a new combined rating of 70%.

Method 1

Disability Compensation Explanation
$1,232.00 New combined pay rate of 70%.
-$781.00 Withheld (original severance-pay rate (pay rate of 50%)).
$451.00 Amount paid to Veteran.

Method 2

Disability Compensation Explanation
$1,232.00 New combined pay rate of 70%.
-$676.00 Withheld (difference between new combined pay rate of 70% and non-severance pay disabilities (pay rate of 40%)).
$556.00 Amount paid to Veteran.

Since Method 2 results in the Veteran taking home more money. It WILL be the method used.

IMPORTANT NOTE:

  • If in the above scenario the Veteran was awarded TDIU. In method 2, the amount withheld would be the SAME! This is due to VA only considering the actual ratings, and NOT the rate the Veteran is paid at!

Example 2 (changes of original severance condition ratings):

Original VA Ratings Future VA Ratings (1) Farther Future VA Ratings (2)
Condition A = 20% Condition A = 10% Condition A = 10%
Condition B = 10% Condition B = 30% Condition B = 30%
Condition C = 10% Condition C = 0% Condition C = 20%
Combined Rating = 40% Combined Rating = 40% Combined Rating = 50%

Future VA Ratings (1) Explanation:

  • As there is no change in combined rating there is NO change in amount recouped.

Farther Future VA Ratings (2) Explanation:

Method 1

Disability Compensation Explanation
$781.00 New combined pay rate of 50%.
-$556.00 Withheld (original severance-pay rate (pay rate of 40%)).
$225.00 Amount paid to Veteran.

Method 2

Is NOT used as there are no new 'non-severance pay disabilities'.

Exceptions of Recoupment

In the following circumstances the Veteran will NOT have to pay their separation benefit back.

General Exceptions

  • Separate periods of service:

    • If the Veteran's disability compensation is based upon a period of service AFTER receiving separation benefits. There will be NO recoupment.

  • Medal of Honor pension is NOT subject to recoupment.

Severance Pay

  • If the Disabilities occurred in a combat zone or during the performance of duty in combat-related operations;

  • You have non-severance related service-connected disabilities that Combined to a higher combined evaluation AND your combined evaluation is NOT increased when your severance related conditions are included in the combination math.

    • For example: Say when considering your non-severance conditions they combine to a 80% evaluation and your severance conditions combine to 20%. As that 20% would not bring you to 90%, you would have no money withheld. HOWEVER, if the math changes in the future, it may be appropriate for the VA to begin recouping.

Voluntary Separation Pay (VSP)

VA MUST recoup VSP from a Veteran’s disability compensation unless:

  • Were eligible to retire (20 or more years of active service), to include transfer to the Fleet Reserve or Fleet Marine Corps Reserve, at the time DoD awarded VSP;

  • Eigible to receive Combat-related special compensation; or

  • Receives a waiver from the Secretary of their service department.

Voluntary Separation Pay (VSP) Air Force

In 2007 and 2008 the Secretary of the Air Force issued specific instructions regarding recoupment of VSP:

Date of Separation Amount Recouped
Before October 17, 2007 After-tax amount (unless granted a waiver)
Between October 17 2007 and April 29, 2008 None
After April 29, 2008 After-tax amount (unless granted a waiver)

Extreme Financial Hardship - Withholding Adjustment

Unless you qualify for an Exemption or have reached with Max withholding with severance pay. The VA WILL WITHHOLD ALL of your VA disability compensation paychecks till you have 'repaid' the entire sum of your separation benefits!

However, if you experiencing extreme financial hardship such as but not limited to having:

  • An eviction notice or statement of foreclosure

  • Notices of past-due utility bills, and/or

  • Collection notices from creditors

You can request that the VA adjust the amount of money that is being recouped.

UNLESS:

  • Your combined disability ratings is less than 30%; or

  • You received Severance Pay.

Requesting an extreme financial hardship withholding adjustment

While there is no official VA form to submit a request. The Veteran should provide the VA or their VSO with a copys of the following to expedite the process:

Submit everything HERE.

References