If you have a disability that is rated by the military disability evaluation system at 20% or lower, you can be discharged (most likely with severance pay, unless the condition existed prior to service and was not permanently aggravated by service or misconduct is involved). Those who are separated for disability may be eligible for monthly disability compensation from the Veterans Administration (VA).
If the condition is rated at or above 30%, and other conditions are met, you will be disability retired..
Your disability retirement may be temporary or permanent. If temporary, your status should be resolved within a five-year period.
The amount of your disability retired pay is determined by one of three methods:
- The first method is to multiply your by your base pay or average of highest 36 months of active duty pay at the time of retirement by the percentage of disability which has been assigned. However, the minimum percentage for temporary disability retirees will equal 50%. The maximum percentage for any type of retirement is 75%.
- The second method is to multiply only your years of active service at the time of your retirement by 2.5% by your base pay or average of highest 36 months of active duty pay at the time of retirement.
- The third method applies to you if you were eligible to retire/transfer under any other law. DFAS will compute your entitlements using both methods above, and use the one which results in the greatest amount of retired pay. If you desire that another method be used, you may request (in writing) that the other method be used.
The difference between temporary and permanent disability is the stability of the medical condition. If you're condition is not deemed "stable" by the PEB, they will recommend you be placed on the TDRL (temporary disability retirement list). When on the TDRL, you are subject to reevaluation every 18 months and limited to 5 years max on the TDRL. At the 5 year point, if not sooner during a re-eval, you are removed from the TDRL and either found fit; permanently retired; or discharged with severance pay.
If, on 24 Sep 1975, you were either a member of an Armed Force or was under a binding written commitment to become a member, and are discharged/retired by reason of disability by the MILITARY disability evaluation system (not VA), your retirement pay may not be taxed. Otherwise, for a tax free retirement, you'd have to have a combat related disability. If you go through the VA disability evaluation system and they grant you disability compensation, that will not be taxed, regardless of whether or not you were in the service on 24 Sep 75.
Veterans Administration (VA) Disability Compensation
Don't confuse VA Disability Compensation with Military Disability Retirement Pay. They are two separate animals. The VA uses completely different standards for determining service-connected disability than the military uses for its disability retirement system.
All retiring members who believe they have a service-connected disability can apply for VA benefits prior to, or after retirement. (In some cases, before retirement, military personnel offices may even help you apply). If you are eligible, a service-connected disability is established. While you are required to relinquish military retirement pay on a $1 to $1 ratio in order to receive VA Disability pay, the following benefits accrue as a result of VA compensation:
- VA compensation is nontaxable
- VA approved disability gives you a priority admittance to VA hospitals for medical treatment for your disability
- VA outpatient facilities are available for treatment of your disability
- If you die as a result of the service-connected disability, your surviving spouse is eligible for Dependency and Indemnity Compensation (DIC) from the VA
- Even a rating by VA of 0% (although of no monetary benefit) documents your physical condition as service-connected.
- A rating by VA of 30% or higher allows you to receive additional tax-free allowances for your dependents.
- Annual cost-of-living increases to your compensation amount.
- VA disability percentage (and VA compensation) can be increased, based on a request and approval of reevaluation, resulting in increased tax-free compensation.
- Possibility of purchasing up to $10,000 of National Service Life Insurance without a physical exam. If you are awarded VA compensation, the gross amount of the compensation is deducted from your retired pay.
The VA advises DFAS - Cleveland Center of all changes in VA compensation amounts. However, if the amount of your VA compensation does not match the amount deducted from your retired paycheck, you should immediately notify the DFAS - Cleveland Center and the VA to resolve the discrepancy.
IMPORTANT: The Comptroller General has ruled that you will be held responsible for any overpayment even if it is the result of an administrative error.