Effects of VA Disability on Retirement Pay

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Disability compensation may reduce the amount of retirement benefits a service member receives.
Disability compensation may reduce the amount of retirement benefits a service member receives. (Image: Jupiterimages/Comstock/Getty Images)

Veterans who become disabled in combat or during another service-related activity are eligible to apply for and receive disability compensation from the U.S. Department of Veterans Affairs unless they are dishonorably discharged. As of 2009, veterans with no dependents may receive up to $2,673 per month in disability compensation. Veterans with 20 or more years of service may also be eligible to receive military retirement pay.

Reduced Retirement Pay

Military retirement pay is calculated by either the final pay grade of the service member or by using the average of the 36 months in which the service member received the highest pay. Unless the veteran is eligible for Concurrent Retirement and Disability Payments or Combat-Special Compensation, he must waive a portion of retirement pay by the amount of any disability pay received to be eligible to receive both benefits.

Benefits of Waiving Retirement Pay

Veterans may opt to receive full retirement pay rather than reduced retirement pay and disability compensation; however, waiving part of the veteran's retirement pay offers tax benefits. Disability compensation is not subject to tax, making a portion of the veterans income tax-free. If the disability compensation exceeds retirement compensation, the veteran may opt to waive all retirement pay in favor of tax-free pay.

Concurrent Retirement and Disability Payments

The Concurrent Retirement and Disability Pay (CRDP) program was started in 2004 and will be phased in by 2014, when all eligible veterans will receive full retirement and disability pay under this program. Veterans are automatically enrolled in this program if they have served at least 20 years and have a service-related disability rating of 50 percent or more.

Combat-Related Special Compensation

Another program to increase concurrent disability and retirement pay is the Combat-Related Special Compensation (CRSC) program. Veterans eligible for this compensation must have served 20 years, have a disability of at least 10 percent and the disability must be combat-related. Veterans must apply for this benefit with their service branch, and approved veterans will receive special compensation pay to cover the amount of retirement pay that is offset by disability pay.

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