VA takes back separation pay
It holds your check until repaid.
Check VA’s math. Mistakes on the after-tax amount are common, and they’re yours to catch.
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1. Why VA takes it back
The law doesn’t let you be paid twice for the same service. If you left the military with a lump sum and VA later rates you for a disability from that service, VA deducts the lump sum from your compensation — usually by holding your entire monthly payment until it’s recovered.
| Payment you received | Recouped from VA pay? |
|---|---|
| Involuntary separation pay | Yes |
| Special separation benefit or voluntary separation incentive | Yes |
| Disability severance pay, non-combat | Yes |
| Disability severance pay, combat-related, separated on or after Jan. 28, 2008 | No |
2. See how long it will take
Federal tax on separation pay is usually withheld at the 22% flat rate for supplemental wages, which is why that’s the default. Your separation pay statement or W-2 shows the exact amount.
3. Check VA’s math
- After-tax, not gross. For payments after September 30, 1996, VA should recoup the amount minus federal tax withheld. If your letter shows the gross figure, challenge it.
- Ask for the calculation in writing and compare it with your separation pay statement.
- Claim the combat exemption if your disability severance came from a combat-zone or combat-related injury and you separated on or after January 28, 2008.
- Later retired pay. If you go on to draw retired pay, such as a Reserve retirement at 60, DFAS also recoups separation pay — and DFAS takes back the gross amount, before tax, through monthly deductions from retired pay. See Guard and Reserve retirement at 60.
Already retired and wondering how VA pay interacts with your pension? See the VA waiver of military retired pay.
4. Frequently asked questions
Does VA take back military separation pay?
Yes. Federal law requires VA to recoup separation pay, special separation benefits, voluntary separation incentive payments and non-combat disability severance pay from VA disability compensation for the same service. VA usually withholds the entire monthly payment until the amount is recovered.
Does VA recoup the gross or the after-tax amount?
For separation pay received after September 30, 1996, VA recoups the after-tax amount: the gross payment minus the federal income tax withheld from it. For payments on or before that date, VA recoups the full amount.
Is any separation pay exempt from VA recoupment?
Disability severance pay for a disability incurred in a combat zone or during combat-related operations is not recouped, for separations on or after January 28, 2008.
How long does VA recoupment take?
It depends on the amount owed and your monthly compensation. VA withholds your payment until the after-tax separation pay is recovered, so $20,000 recouped at $1,000 a month takes about 20 months.