If you are retired military, and you have a VA disability rating below 50%, then the VA Offset effects you. This article explains the offset and offers potential solutions.
How Disability Compensation Evolved
Up until 2004, retired military veterans who were eligible to receive both VA disability compensation and retirement pay had to choose one or the other. They couldn’t accept both. Even though the funds come from different agencies and different budgets, receiving both equaled ‘double-dipping.’
In 2004, the Concurrent Retirement Disability Pay (CRDP) law passed, allowing Veterans to receive both disability and retirement pay ‘concurrently.’ It did not happen overnight, though. This was a massive increase in federal expenditure, so it was phased in over several years.
The laws have changed, but the mindset still exists. Let’s look more closely at how the system works now.
The VA Offset Explained
If the VA accepts your claim for a service-connected disability and grants you at least a 10% disability rating, then you receive monthly compensation from the VA for that condition. It does not matter whether your 10% rating comes from tinnitus or a bad back, pay correlates only to the score.
When one or more service-connected disabilities give you a combined rating of 30%, the VA starts paying additional money each month. How much more depends on your number of dependents.
This compensation system holds true for Veterans who are retired and for those who are not.
However, if you are retired, the government will REDUCE your military retirement pay every month by the amount of the VA disability compensation you receive. This is called the VA offset.
While you’ll receive both forms of compensation, you won’t see much difference in your wallet until tax time. That’s because the federal government does not tax disability pay. They do tax retirement pay.
Likewise, some states tax retirement pay too. The bottom line is that while the 2004 law granted the ability to receive both retirement pay and VA disability, the net effect is tax reduction only because of the VA offset…until your disability rating is 50% or higher.
Your combined VA disability rating must reach 50% before the VA offset disappears, unless you meet this one exception…
Combat Related Special Compensation
There’s actually a little-known law that passed in 2008 that allows eligible retirees with combat-related disabilities ‘offset’ the VA offset. This is the one exception to reaching 50% before the VA offset disappears.
The legislature created Combat Related Special Compensation (CRSC) in 2008 to address the VA offset when it affects compensation for combat-related disabilities. Even if you didn’t serve in combat, you may still be eligible for CRSC.
The following situations may be considered combat-related:
- Injuries from direct armed conflict or battle.
- Injuries that occur during combat training or simulated war exercises
- Any hazardous activity that supports the combat mission, such as parachuting or exposure to an ‘instrumentality of war.’
- Diseases from exposure to toxins
- Accidents in combat vehicles
- Incidents involving bomb disposal
Applying for CRSC
According to DFAS, you apply for CRSC through your branch of military service.
To be considered eligible for this program, you must have a combat-related injury of at least 10% and be entitled to and/or receiving military retirement pay. This means you qualify through one of these channels:
- Active or Reserve with 20 years of creditable service
- Retired under Temporary Early Retirement Act (TERA) OR Retired under the Temporary Disabled Retirement List (TDRL)
- Chapter 61 medically retired with less than 20 years of service
No statute of limitations exists, so you could qualify for CRSC even if you retired years ago. You may also be able to receive back pay, but that does come with restrictions.
Back pay under CRSC can only go to the effective dates of the laws. Those dates are June 1, 2003, for those with 20 years of service, and January 1, 2008, for those who were medically retired under Chapter 61 with less than 20 years of service.
Your Disability Pay Without the Offset
Without the VA offset, you receive VA compensation for your accepted conditions(s), along with extra monthly pay per dependent, plus your full retirement pay. To simplify things, let’s look at an example with no dependent compensation.
You’ll see that going from a 40% rating ($627.61 per month) to a 50% rating ($893.43 per month) may be one of the most significant conceptual ‘jumps’ in the VA compensation system, just short of going from 90% to 100%.
We say this because this is the point at which the government does not penalize you for ‘double-dipping.’ This jump increases your non-taxable VA disability income by $265.82 per month (an additional $3,189.84 per year). Plus, you keep the $7,412.76 that had been deducted annually from your military retirement pay. This makes a financial difference of $10,602.60, just through 10%!
Remember, to receive CRSC, you must have a combined VA combat-related disability rating between 10 percent and 40% so that you are affected by the VA disability offset. Only combat injuries qualify for this compensation. But if you are eligible for this program, here’s what will happen:
You receive taxable retirement pay that has been offset by tax-free VA disability income like you always have. Then you receive the tax-free CRSC compensation according to the amount of your combat-rated disabilities. This means that you still experience VA offset, but the feds are paying you all or a portion of that offset back from another pocket.
Many Veterans we talk to are unaware that they have additional conditions that could be tied to their military service to receive an increased VA rating. Many are also unaware that they should be requesting increases to their current ratings as their bodies age and change.
If this is true of you, both of these avenues can lead to an increase in your VA rating and potentially remove the VA offset.
If not, perhaps one or more of your rated disabilities are ‘combat-related.’ If so, you should apply to your branch of military service for CRSC. You could potentially curtail the reduction to your compensation.
Please feel free to call Strategic Veteran at 800-761-9004 if you have questions about how the VA offset affects your retirement pay and what you can do about it. All our services are free, Veteran to Veteran.