Before 2004, if you were retired, it was illegal to get VA compensation and military retirement pay at the same time. After January 1, 2004, the laws changed, allowing any retired military individual to file for VA compensation. Once a veteran filed for VA compensation, the question became, how to receive VA disability payment if you are retired from the military.
A 40% VA Disability Rating Gives You A Tax Break in Your Retirement Pay
If you have a VA rating of 40% and military retired, the VA applies your rating percentage against your retirement pay instead of issuing you a disability check. How this works is 40% of your retirement pay from the military is tax-free; the rest of your military retirement pay is taxable.
Here is an example of the payment breakdown. You are receiving $2,000 a month in retirement pay. With a 40% VA disability rating, your disability compensation would be $641.28. However, instead of receiving an extra check each month in VA compensation, the $641.28 out of the $2,000 now becomes tax-free. The rest of the $1,358.72 would be taxable.
At the end of each month, you would receive a check for $2,000, but only pay taxes on $1,358.72.
A 50% VA Disability Rating You Can Also Receive Full Military Retirement Pay
When the laws changed in 2004, veterans were able to receive both military retirement pay and VA disability compensation at the same time under Concurrent Retirement Disability Pay (CRDP). When CRPD is reached with a 50% rating or higher, a veteran is eligible to receive full military retirement pay along with full VA disability compensation.
Here is an example of the payment breakdown. You are receiving $2,000 a month in retirement pay. With a 50% VA disability rating, your disability compensation would be $901.83 per month. Unlike the 40% rating example above, you would receive an additional check each month in VA compensation for $901.83, which is also tax-free. Your military retirement pay of $2,000 is still taxable.
At the end of each month, you would receive a retirement check for $2,000 and a VA compensation for $901.83. That brings the total monthly payment to $2,901.83; $2,000 taxed and $901.83 tax-free.
The Value of Receiving VA Compensation and Military Retirement Pay
After 2004, veterans can receive VA compensation for their service-connected disabilities while also being retired. Yet, the value of a VA rating makes a dramatic impact on veterans’ monthly pay.
Taking our examples from above, receiving a tax-free part of your retirement pay of 0%-40% (based on your VA rating) is a great benefit. It may not put a lot back into your wallet but having a little tax-break always helps. The more considerable monthly impact comes with least a 50% VA rating, which adds an extra (tax-free) monthly check for a veteran.
Let’s take a quick look at how this calculates out side-by-side.
· 40% disability rating: $2,000 total ($1,358.72 taxable; $641.28 non-taxable)
· 50% disability rating: $2,901.83 total ($2,000 taxable; $901.83 non-taxable)