When veterans transition out of military service, they may receive various types of separation benefits from the Department of Defense (DoD) or the Department of Homeland Security (for Coast Guard veterans).
However, these benefits can affect their eligibility for VA disability compensation.
By law, the Department of Veterans Affairs (VA) is prohibited from paying disability compensation to veterans who have already received certain types of separation benefits to avoid duplicating benefits for the same period of service until the full amount of the separation pay has been recouped.
Sources:
- The prohibition against “double-dipping” is governed by 38 CFR 3.700
- VA claims adjudicators follow M21-1, Part VI, Subpart ii, Chapter 2 – Recoupment of Separation Benefits
Table of Contents
Summary of Key Points
- Impact of Separation Benefits: Veterans who receive certain types of separation benefits from the DoD or DHS may have their VA disability compensation withheld until the full amount of these benefits has been recouped, as mandated by 38 CFR 3.700.
- Types of Benefits Affected: Separation benefits like Readjustment Pay, Non-Disability Severance Pay, and Special Separation Benefit (SSB) are among those that trigger VA recoupment, potentially delaying the start of VA disability payments.
- Preventing Double Compensation: The VA recoups separation pay to avoid “double-dipping,” ensuring veterans do not receive overlapping payments for the same period of service, which is required by law for fairness and regulatory compliance.
- VA Recoupment Waivers: Veterans may apply for a recoupment waiver in cases of combat-related injuries or financial hardship, potentially reducing or eliminating the amount withheld from their VA disability compensation.
Types of Separation Benefits Impacted
Several types of separation benefits can impact a veteran’s eligibility to receive VA disability compensation.
These include:
Readjustment Pay under former 10 U.S.C. 687 and 3814a
Readjustment Pay was provided to certain service members who were involuntarily separated from the military to help them transition back into civilian life. These provisions have been repealed, but veterans who received this pay are still subject to recoupment if they later qualify for VA disability compensation.
Non-Disability Severance Pay under former 10 U.S.C. 359, 360, 859, and 860
Non-Disability Severance Pay was given to service members who were involuntarily separated from the military without a disability. Though these provisions are no longer in effect, veterans who received this type of pay are still required to have the amount recouped from their VA disability compensation.
Separation Pay under 10 U.S.C. 1174
Separation Pay under 10 U.S.C. 1174 is provided to service members who are involuntarily separated and meet specific criteria, such as having completed a certain number of years of service. This payment is subject to recoupment by the VA if the veteran later receives VA disability compensation.
Reservists’ Involuntary Separation Pay (RISP)
RISP is given to reservists who are involuntarily separated from service before reaching retirement eligibility. Veterans who received RISP and later qualify for VA disability compensation will have their compensation withheld until the full amount of RISP is recouped.
Special Separation Benefit (SSB) under 10 U.S.C. 1174a
SSB was a one-time payment offered to service members who voluntarily separated under specific drawdown programs in the 1990s. Veterans who accepted SSB are subject to recoupment if they later become eligible for VA disability compensation.
Voluntary Separation Pay (VSP) under 10 U.S.C. 1175a
VSP is offered to service members who voluntarily separate from service under specific conditions, often as part of force reduction efforts. Similar to other types of separation pay, VSP is recouped by the VA if the veteran receives VA disability compensation afterward.
Disability Severance Pay under 10 U.S.C. 1212
Disability Severance Pay is provided to service members who are separated due to a disability that is not severe enough to warrant medical retirement. Veterans who receive this pay are required to have it recouped if they are later awarded VA disability compensation for the same condition.
These benefits, if received, may lead to the VA withholding disability compensation until the full amount of the separation pay has been recouped.
Duplication Prohibition
The VA’s primary objective in this prohibition is to prevent the duplication of benefits.
If a veteran has received a separation benefit for their service, they cannot also receive VA disability compensation for the same period of service without offsetting the benefits already received.
For example, if a veteran received a lump-sum payment as separation pay under 10 U.S.C. 1174, the VA will withhold disability compensation until the total amount of that separation pay has been recouped.
Recoupment of VA Benefits
When a veteran applies for VA disability compensation after receiving separation pay, the VA will determine the total amount of the separation pay and begin withholding disability compensation until the separation pay is fully recouped.
This process ensures that veterans do not receive double compensation (aka, “double-dipping”) for the same period of service.
The VA typically recoups the pre-tax amount of the separation pay for benefits received before September 30, 1996.
For benefits received after that date, the VA recoups the after-tax amount.
This difference is significant because it affects how much money the VA will withhold from a veteran’s monthly disability compensation.
For instance, if a veteran received a lump sum separation payment of $30,000 before September 30, 1996, the VA would withhold the full $30,000 from the veteran’s disability compensation.
However, if the same payment was received after that date, the VA would only withhold the amount remaining after taxes were deducted from the $30,000.
Impact of Multiple Separation Benefits
In cases where a veteran received more than one type of separation benefit, the VA will calculate the total amount of all benefits received to determine the amount to be recouped.
For example, if a veteran received both Special Separation Benefit (SSB) and Disability Severance Pay, the VA will combine these amounts and withhold the corresponding amount from the veteran’s disability compensation.
Correcting Errors in Recoupment
Errors can occur in the recoupment process, such as incorrect calculations of the amount to be recouped or the VA mistakenly withholding more than required.
Veterans who believe there has been an error in the recoupment process should immediately contact the VA or seek assistance from a VA-accredited representative.
In some cases, a financial audit may be necessary to resolve disputes and correct any errors.
Exceptions to VA Separation Pay Recoupment
There are specific situations where the VA does not require recoupment of separation benefits.
- Combat-Related Disability Severance Pay: If a veteran received disability severance pay due to a combat-related injury, the VA may waive the recoupment requirement, allowing the veteran to receive both severance pay and VA disability compensation without an offset.
- Voluntary Separation Pay (VSP) and Retirement Eligibility: Veterans who were eligible for retirement at the time they received Voluntary Separation Pay (VSP) may be exempt from recoupment. This means that if the veteran could have retired instead of accepting VSP, they might not be required to have the VSP amount recouped from their VA disability compensation.
- Concurrent Retirement and Disability Pay (CRDP): Veterans with a VA disability rating of 50% or higher are eligible for CRDP, which allows them to receive both their full military retirement pay and VA disability compensation without any offset or recoupment. This exception applies to regular military retirees, enabling them to receive both benefits concurrently if they meet the eligibility criteria. However, this does not apply to those who retired under disability or early retirement provisions unless they are also eligible for CRDP.
- Special Combat-Related Compensation (CRSC): Veterans who are eligible for Combat-Related Special Compensation (CRSC) can receive this benefit alongside VA disability compensation without recoupment. CRSC is a tax-free benefit for veterans whose disabilities are combat-related, and it does not reduce the amount of VA disability compensation they receive.
These exceptions provide important protections for veterans, ensuring they receive the benefits they are entitled to without unnecessary financial penalties.
Example Scenario
Imagine a veteran who received $25,000 in Special Separation Benefit (SSB) upon voluntarily separating from the military during a force reduction program.
A few years later, the veteran is diagnosed with a service-connected disability and becomes eligible for VA disability compensation.
Because the veteran received the SSB, the VA is required to recoup the full $25,000 before they can begin receiving their disability compensation in full.
Here’s how it works: The VA will withhold a portion of the veteran’s monthly disability payments until the entire $25,000 is recouped.
For instance, if the veteran is awarded $1,000 per month in VA disability compensation, the VA might withhold the full $1,000 each month, meaning the veteran wouldn’t receive any compensation until 25 months have passed, at which point the $25,000 would be fully recouped.
Now, let’s add another layer.
Suppose this veteran also received $10,000 in Disability Severance Pay for a non-combat-related injury upon separation.
In this case, the VA would need to recoup a total of $35,000 ($25,000 from the SSB and $10,000 from the Disability Severance Pay).
The VA would continue withholding the monthly $1,000 disability compensation for 35 months until the full amount is recovered.
Only after this recoupment period would the veteran start receiving their full monthly VA disability compensation.
Why Does the VA Recoup Separation Pay?
The VA recoups separation pay to prevent the duplication of benefits for the same period of service.
Here’s why this is necessary:
- Preventing Double-Dipping: When a veteran receives separation pay, such as severance or special separation benefits, it is intended as compensation for their service and transition out of the military. If the VA were to provide disability compensation for the same period of service without recouping the separation pay, the veteran would effectively receive double compensation for the same service period.
- Legal and Regulatory Compliance: U.S. law and VA regulations, specifically 38 CFR 3.700, mandate that the VA must recoup certain types of separation pay before providing disability compensation. This ensures that the distribution of benefits is fair and consistent with the intent of the law.
How Do I File a VA Recoupment Waiver?
A VA recoupment waiver allows veterans to request that the VA not recoup, or take back, certain types of separation pay from their VA disability compensation.
This process can help veterans avoid financial hardship by reducing or eliminating the amount the VA would normally withhold.
Key Points:
- Eligibility: Veterans may qualify for a waiver if their separation pay was due to a combat-related injury or if repaying the amount would cause severe financial hardship.
- Filing a Request: To apply, veterans need to submit a formal waiver request to the VA, including any supporting documents like medical records or financial statements.
- VA Review: The VA reviews the request to determine if recoupment would be unfair or cause undue hardship. If the waiver is approved, the VA stops or reduces the amount they would otherwise withhold.
- Notification and Appeal: Veterans are informed of the VA’s decision in writing. If the waiver is denied, the veteran can appeal the decision and provide additional evidence.
This process helps veterans who face significant challenges due to the recoupment of their separation pay, providing them with a potential path to financial relief.
Conclusion & Wrap-Up
The VA’s prohibition against the duplication of benefits ensures that veterans are compensated fairly without overlapping payments for the same service period.
Veterans who have received separation benefits should be aware of how these payments affect their eligibility for VA disability compensation and the potential for recoupment by the VA.
Understanding these regulations and monitoring the recoupment process can help veterans avoid unexpected reductions in their compensation and ensure they receive the benefits they are entitled to.
If there are any concerns or uncertainties, veterans should seek guidance from a VA-accredited representative to navigate the complexities of these regulations effectively.
About the Author
Brian Reese
Brian Reese is a world-renowned VA disability benefits expert and the #1 bestselling author of VA Claim Secrets and You Deserve It. Motivated by his own frustration with the VA claim process, Brian founded VA Claims Insider to help disabled veterans secure their VA disability compensation faster, regardless of their past struggles with the VA. Since 2013, he has positively impacted the lives of over 10 million military, veterans, and their families.
A former active-duty Air Force officer, Brian has extensive experience leading diverse teams in challenging international environments, including a combat tour in Afghanistan in 2011 supporting Operation ENDURING FREEDOM.
Brian is a Distinguished Graduate of Management from the United States Air Force Academy and earned his MBA from Oklahoma State University’s Spears School of Business, where he was a National Honor Scholar, ranking in the top 1% of his class.
