When VA withholds your first checks, the likeliest explanation is not an error. It is your own severance pay coming back. The law will not pay twice for the same disability, so the lump sum is recovered from your monthly compensation. Two details decide real money here: combat related severance after January 2008 is not recouped at all, and VA should recover the after-tax figure, not the gross.
Why VA withholds compensation after separation
Some veterans open their first VA payment and find that VA is withholding part or all of it. Often the reason is recoupment of military disability severance pay or separation pay. It is not a penalty and it is not an error. The law prevents you from being paid twice for the same disability, so VA recovers the earlier lump sum out of your monthly VA compensation until it is paid back.
Disability severance pay
If the Physical Evaluation Board found you unfit with a DoD rating under 30 percent, you likely received disability severance pay under 10 USC 1212 as a lump sum when you separated. When VA then pays compensation for that same condition, 38 CFR 3.700 directs VA to withhold your monthly compensation until the severance amount is recovered. After that, your full monthly payment begins.
The combat related exception
There is an exception. Disability severance pay received for a combat related condition, for separations after January 28, 2008, is not recouped. If your unfitting condition was combat related, VA should not withhold for it. This also ties into Combat Related Special Compensation.
How taxation affects the recoupment amount
Severance pay was often taxed when paid. Under the Combat-Injured Veterans Tax Fairness Act, many veterans whose severance was for a combat related injury were entitled to a refund of the tax withheld, and VA generally recoups the amount actually received. If you believe VA is recovering a pre-tax figure when it should use the lower after-tax figure, that is worth questioning.
Separation pay
Voluntary separation pay and involuntary separation pay are also generally recouped from VA compensation under the same principle. The Defense Finance and Accounting Service can show you what you were paid and what is being recovered.
What to do
- Pull your separation records to see whether you received disability severance, separation pay, or neither.
- Check whether the condition was coded combat related, which can stop recoupment.
- Compare the amount VA is recovering to the amount you actually received.
- Ask VA in writing if the figures do not match.
This is educational. It is not legal advice. A VA accredited representative can review your recoupment and whether the combat related exception applies.
Sources
- 10 USC 1212 (disability severance pay)
- 38 CFR 3.700 (recoupment of separation and severance pay)
- Defense Finance and Accounting Service, military disability pay
- VA, About VA disability ratings