As I wrote a few weeks ago my VA disability claim was finally settled. Suddenly, after nearly two years of pushing the rope up the hill, I found myself with one less windmill at which to tilt.
Although I can now put down my lance and put my trusty steed back in the barn, I still find the whole process to be pretty confusing. In particular, figuring out just what being identified as a disabled veteran means in real terms — meaning just what impact does my rating have on a retiree’s bank account?
It turns out that if you have incurred an injury while serving in uniform, and that injury is determined to be disabling, then you are entitled to compensation from the Veterans Administration. That compensation is paid directly to the veteran by the VA, which is nice. It is also tax free, which is nicer.
But, as usual, things are not as simple as they seem. Particularly for retirees who receive a pension for their 20+ years of service to the nation. Like me.
In that case, any remuneration that you receive from the VA is offset by an equal deduction from your pension, with the only really difference in your retirement check being the portion from the VA that is tax free. For example (and this example is in round numbers to keep things easy), if your pension is $1500 per month, you receive a check for $1500 minus any taxes (let’s say 20%, which is $300), or $1200.
Now, let’s say that you receive a disability rating that results in a payment from the VA of $100. That $100 is not added to your check for a total of $1600. Instead, $100 of the $1500 that was paid by the Defense Finance and Accounting Service (DFAS) is now paid by the VA, so the total pension amount stays the same. What changes is how the taxes are computed.
Now you have $1400 that is taxable, which results in a slightly lower tax bill. Here is the math:
$1400 x 20% = $280 in taxes.
$1400 (from DFAS) + $100 (from the VA) = $1500 (which is your pension amount).
$1500 (pension + VA Disability) – $280 (taxes) = $1220.
Sooooo…..as a retiree you get an extra twenty bucks in your monthly check. If you are not a retiree, however, you get the full $100.
That seems really odd. But wait, there’s more!
The reduction of your pension by the disability payment changes at the 50% disability threshold. If you are rated as having a disability rating of 50% or more, then the bizarre math problem that we just performed goes away. In that case, you receive your entire pension as well as the complete VA disability amount.
Sounds bizarre, eh? I’m not making this stuff up! Really!
It is known as Concurrent Receipt of VA Compensation and Retired Pay. For a more in depth explanation of the math problems above, you can read all about how it all works by following this link.
For those of you who were wondering how pensions are affected by VA disability benefits, well, now you know. For those of you to whom this does not apply, thanks for reading anyway!