The General Rule: The VA Disability Offset
For most military retirees, there is a dollar-for-dollar offset between military retirement pay and VA disability pay. This means that for every dollar you receive in tax-free VA disability benefits, your taxable military retirement pay is reduced by one dollar. The reason for this law is to prevent “double-dipping”—being paid twice for the same service from two different government agencies. However, there are two major exceptions to this rule.
Exception 1: Concurrent Retirement and Disability Pay (CRDP)
CRDP is a program that allows some retirees to receive both their full military retirement pay and their full VA disability compensation. You do not need to apply for CRDP; if you are eligible, the Defense Finance and Accounting Service (DFAS) will automatically enroll you.
To be eligible for CRDP, you must:
- Be a regular retiree with 20+ years of service, a reservist with 20+ years, or retired under the Temporary Early Retirement Authority (TERA).
- Have a VA disability rating of 50% or higher.
For more detailed information on medical evidence, our Medical Documentation and Retirement Resource is an excellent resource.
Exception 2: Combat-Related Special Compensation (CRSC)
CRSC is a special compensation for combat-related disabilities. Unlike CRDP, this is a separate payment that replaces the VA offset, and you must apply for it through your branch of service. It is not taxable.
To be eligible for CRSC, you must:
- Be receiving military retirement pay.
- Have a VA disability rating of at least 10% that is determined to be “combat-related.”
A disability is considered combat-related if it was incurred as a direct result of armed conflict, while in combat, or from an instrumentality of war (like exposure to Agent Orange).
Who Qualifies for CRDP and CRSC?
Some retirees may be eligible for both CRDP and CRSC. However, you cannot receive both payments simultaneously. Each year, DFAS will send you a form allowing you to choose which benefit you prefer for the upcoming year. Generally, if your disability rating is high, CRDP is more financially beneficial. If your rating is lower but your disabilities are combat-related, CRSC may be the better option.
FAQ: Retirement and Disability Pay
Is VA disability pay taxed?
No, VA disability compensation is not taxable at the federal or state level. Military retirement pay, however, is generally taxable.
What is the difference between medical retirement and standard retirement?
A standard retirement comes after 20+ years of service. A medical retirement occurs when a service member is found unfit to perform their duties due to a physical or mental disability. Medically retired service members with less than 20 years of service are generally not eligible for CRDP but may be eligible for CRSC.
Do medically retired military get a pension and VA disability?
Yes, but they are typically subject to the VA offset unless they qualify for CRSC. This is a complex topic, and our comprehensive guide on Medical Documentation for Retirement and Disability can provide further clarity.
Notice: We provide medical evaluations and nexus letters based solely on clinical judgment. Our services include documenting symptoms, diagnoses, and functional limitations for medical purposes. Fees are for medical services only and are not contingent on claim outcomes. We do not provide claim preparation, filing, or strategy services and we comply fully with California SB 694.