I Have to Pay Back My Separation Pay!

Aug 25 2010

Yes. When it comes to separation pay, it’s all in its name.  First I’ll explain the law and DOD policies on this issue.  The MOAA position will follow.

Separation pay is given to members separated early from the Service. It is intended to help the separating member transition to civilian life. The point being, the member leaves the Service. That’s why a separated member who actually separates doesn’t re-pay the separation pay, because the money was used as intended.

On the other hand, a member who returns to the Service in some other form, and becomes eligible for retirement, didn’t separate from the Service as intended. Under this situation, the separation pay, which wasn’t used to separate, is now considered an advance of retired pay—a key difference in the nature of the pay.  By law, you can’t be paid twice for the same service.  Separation pay is a form of retired pay in lieu of actually retiring.  You were already paid for your previous service and now you’re using the same service to qualify for actual retirement.

As an advance of retired pay, when the member qualifies for retired pay, you have already received a portion of retired pay when you transitioned (not separated) to another Service component. As a result, your “separation pay” amount is withheld from your retired pay until your advance is recouped.

Regarding the taxation of the pay…  You were advanced a gross amount of pay and you paid taxes. This is the same for any retired pay. When you eventually receive retired pay, the gross amount is withheld from your pay because that is how much retired pay was advanced to you.  Example: the DOD fronted you $30,000 and the DOD withholds $30,000 to recoup their advance.  In the case of repayment by the VA, the VA only deals in tax-free compensation.  The after-tax, net amount of your pay is considered the tax-free portion of your separation pay, therefore the net amount is recouped.

For more on taxes see my Comments below dated 11 Sept at 0935.    

The new repayment program of DOD has capped the rate of repayment at 40%.  If you can show financial hardship, you can appeal for a lower repayment rate.

Now for the MOAA view.

For many years MOAA has fought and continues to fight as one of our goals to stop the repayment of all involuntary separation pay.  We do not believe involuntary separation pay is an advance of retired pay.  We have not been able to get support from representatives on the Hill for this position.

For voluntary separation pay, we have worked and continue to work to have a portion of the pay designated transition pay that wouldn’t have to be paid back.  Some of the pay is figured based on service years and you can’t be paid twice for the same service time so some voluntary separation pay would still have to be paid back.  Once again, no representatives will support this action.

MOAA’s position is that it’s not right for involuntarily separated members to have to pay it back.  We have to live with the law until we can convince enough legislators to support our positions.

68 responses so far

68 Responses to “I Have to Pay Back My Separation Pay!”

  1. Gerald Campbellon 08 Sep 2010 at 1:57 pm

    Sounds like double talk, to me. A governmental reasoning.

  2. Bert Godlewskion 08 Sep 2010 at 2:07 pm

    The bottom line – If you’re in the military, navy or coast guard and you’re going to get screwed sooner or later for your service. I AM paying back what I paid in taxes. I did the math and no matter how DFAS holds up smoke and mirrors, the SM gets hosed every freakin month!! MOAA did not help with any of this because there weren’t enough fish to fry and I quit MOAA. You’re part of the problem instead of listening and being part of the solution. Oh yeah … I left and took VSI, where are my 15 points a year for membership in the reserves so I can reapply for Reserve Retirement at age 60. (None of my post 9-11 service counts for early reserve retirement since I retired on 31 Dec 2007.) No one has answers, just their hands in my pockets. Trying finding anyone at AR PERSCOM that can answer a question .. you’ll get a voice mail that is full or never answered.

    Sep pay wasn’t meant to help us transition, it was meant to act as an incentive to meet congressionally mandated manning levels an avoid a regular post Vietnam style RIF. Was this a thrid grade term paper?? Geez!!

  3. Col. Belangeron 08 Sep 2010 at 2:10 pm

    It’s unfortunate that this article does not clearly explain differences in separation pay. Here’s one example: separation pay received by an officer who is twice passed over for promotion, upon serparating and on the same day the officer receives a DD-214 and the separation pay, sees an in-service Reserve Recruiter and joins the Reserve as a drilling Reservist. All of this officer’s active duty time counts for qualification for Reserve Retirement at Age 60. And, after separation from active duty, as long as this officer serves 8 or more years in the active Reserve and ultimately obtains 20 or more qualifying years of Reserve military service, he or she can apply for and receive their earned Retired Pay at Age 60 with no penalty and without having to pay back a penny to anyone. There are numerous and various situations as to how and when a soldier becomes eligible for, receives, or refuses separation pay — addressing this subject should specifically and categorically address each and every one.

  4. Sam Youngon 08 Sep 2010 at 2:24 pm

    I agree with the repayment of separation pay, however, I have an issue with it.

    You stated that “You were advanced a gross amount of pay and you paid taxes. This is the same for any retired pay. When you eventually receive retired pay, the gross amount is withheld from your pay because that is how much retired pay was advanced to you.”

    The problem is by paying back the entire gross amount, the Federal government has the full amount back, plus what you paid in taxes. In my case that is around $30,000.

    Interestingly, if you qualify for VA benefits and no military retirement from which the separation pay can be collected, the VA only collects back the net amount of the separation pay received. That is the Federal law.

    FYI, I was a Army National Guard officer on active duty when I reached my 30 year mandatory removal date and was involuntarily separated from active duty; receiving separation pay due to involuntary separation. I was also 55 years old and not able to draw my retired pay until age 60.

    At this point, DFAS has now collected more than the net amount I received.

    If the VA only collects back the net, why does DFAS collect back the gross amount?

    The law says what I received will be collected back from my military retired pay. That I understand. But by collecting back the net plus what I paid in taxes means the gross plus taxes is like paying interest and the law does not say we have to pay interest on separation pay that is paid back.

    FYI, several years ago there was an article in which an individual stated he received paperwork from the finance office at Fort Lewis that said the U.S. Supreme Court ruled that military separation pay was not taxable. I would like to know if that is true.

    Unfortunately, the above was not fully explained when I received my separation pay. If it had been, I would not have taken my separation pay.

    Thank you for any assistance you can provide.

    Sam Young

  5. Peggy Durretton 08 Sep 2010 at 3:50 pm

    What percentage of your retired pay is withheld to pay back the separation pay?

  6. Sam Youngon 09 Sep 2010 at 8:51 am

    I’d like to see the MOAA experts in this area address the having to pay back the taxes issue. That is the government collecting our money twice. Once is fair, twice appears to be theft.

    I have addressed this to my congressman.

  7. Bert Godlewskion 09 Sep 2010 at 9:36 am

    This is a very strange situation. A friend of mine took SSB and ended up paying back only the NET amount rec’d before getting her VA benefits. I took VSI and I have to pay back the GROSS amount out of my retirement. At first the rate of recoupment from retirement was 74% of my retirement check but now it’s 40%. I stopped VA comp because for every dollar of VA I rec’d I lost $1 in retirement and $1 in VSI payments. Like I stated earlier MOAA has been MIA on this issue and ignored our requests for assistance. The MOAA tax “experts” do not see our point of view. VSI should have been considered a “loan” since it would be paid back and not taxed at all. If it was in lieu of retirement why is it paid on a W2 vice a 1099? Like I said, you can ask all the questions but there is no SME with any answers. From DA to DFAS, Congress to the Senate, they pull some weird answer out their third point of contact and pass it on.

  8. Randall Harton 09 Sep 2010 at 4:23 pm

    I agree with you for quitting MOAA. All these guys do up there at MOAA is suck up to the members of congress trying to get additional benefits for every damn thing immaginable, instead of selectively picking and choosing their battles on issues that we really need to fight for. In the mean time they’ve helped to drive the cost of military benefits up to such rediculous levels that they’re not sustainable anymore. Another classic example retired 0-6′s and Flag Officer’s showing their gross incompetence and mismanagement abilities. These clowns are worthless when it comes to making a real difference.

    The government is so damn strapped for resources, that they will use any means, lie or tactic to try and recover money off the backs of our poor G.I.s who were mislead again and again.

    Best of luck fighting your battle.

  9. Barbara Jo Foleyon 09 Sep 2010 at 4:24 pm

    I agree with Sam Young. I paid back by NET separation pay and was receiving my full retirement pay – which means that DFAS agreed that I had paid back in full. Now I am notified that I have to pay back the taxes. Seems like double taxation to me. I also don’t understand why only NET separation pay is collected, if you are receiving only VA benefits, but GROSS separation pay is collected if you are paying with retirement pay. I don’t understand why DFAS determined, in 2008, that I had paid back my separation pay and then in 2010 began collecting separation again. I, too, have contacted my congressman, but I also believe that no one, MOAA, Congress, etc. seems interested in sorting this out. I believe that MOAA could be a big help in sorting out all of the discrepancies. As a MOAA member, I am asking you to do this.

  10. Claude Farmeron 09 Sep 2010 at 5:09 pm

    The basic unfairness of the system is that the separation allowance is taxed on it’s payment. If the reservist pays it back from income received, it will be paid from post-tax income, essentially the separation allowance may be taxed twice; first when initially paid and later when repaid.

    If at all possible, arrange through DFAS to take the recoupment from retired payments BEFORE the income tax is withheld. That way it is taxed only once. I do not know it that method is still possible, but more than worth while if it is.

  11. Shane Ostromon 09 Sep 2010 at 5:20 pm

    My blurb was to explain the law and the DOD policies, it wasn’t the MOAA position. I added the MOAA position to the blurb to complete the story.

    You’ll also note I bulked up the explanation of the taxation issue and the new repayment rate capped at 40%.

    Regarding quitting MOAA because of this one issue. We are the leading military organization leading the charge for military benefits. That’s not us saying it. That’s stated among people in the know on the Hill, it’s noted in The Hill newspaper, and by our leadership of the Military Coalition. We are the fourth largest military organization in the country with almost 400,000 members. My point is not a MOAA commercial but to ask, if you aren’t with us, who is fighting for you? The more members we can bring to the battle, the better our chances for success. Even if we haven’t been successful, at this point, on your one cause doesn’t mean we won’t be successful. Us losing members certainly won’t help.

    One other thing, we fight for the troops and their families, past and present. Membership means a lot more than one issue. We are officers taking a leadership position to support the troops. Our efforts help Service members and their families of all ranks. Some of these comments smack of a “I’m taking my bat and ball and going home because you won’t play by my rules…” attitude.

    We spent over a dozen years fighting for and writing the draft legislation for the Post 9-11 GI Bill before we finally earned Congressional support and got it through. Some organizations taking credit weren’t even around when we started the effort. This is one of numerous success storied over the past 10 years alone. We also have $24 million outstanding in grants and no-interest loans working to help the dependents of Service members of all ranks pay for college.

    There are too many other issues to list in this comment where we support Service members. I just want people who read this to realize that MOAA is much much more than this separation pay issue; all for a measly $31 a year.

  12. LTC Roger Kelleyon 09 Sep 2010 at 6:44 pm

    Okay, here goes. I’m a Viet-nam vet who was RIF’d in 1972 with 12 + years enlisted and commissioned service. As part of my final pay I was given $10,000 in “re-adjustment pay” although it was not reflected as such in my final DD214. Around 1974/75 I joined the National Guard and later the Army Reserve serving enough years to qualify for retirement at age 60 (2003). Although the $10K was not witheld from my retirement pay it was recovered by the VA when I was awarded disability compensation in 1995.
    The VA recovered this money strictly on my say so that I had received it. They were unable to confirm with DFAS that I owed any money at all.
    I have always felt that the re-adjustment pay that I received should not have been witheld from my VA compensation or retirement pay.
    Any comments on this????

  13. Sam Youngon 09 Sep 2010 at 7:00 pm

    Shane, I am not dropping out of MOAA, but I am asking MOAA to assist us addressing this issue.

    I know what the law says for DFAS collects, but am including it here in the event others reading this do not know the law.

    U.S. Code, Title 10 – Armed Forces, Subtitle A – General Military Law, Part II – Personnel, Chapter 59 – Separation, Section 1174 – Separation pay upon involuntary discharge or release from active duty, Subparagraph (h) – Coordination with Retired or Retainer Pay and Disability Compensation, subparagraph (1) states that a service member who has received separation pay and who later qualifies for retired pay under this title will have deducted from each payment of retired pay so much of the pay until the deducted amount is “equal to the total amount of separation pay, severance pay, and readjustment pay received”.

    Apparently, DFAS-Military and Annuity Pay Office reads that as the gross amount of separation pay and not the net amount.

    My DD 214 shows the gross amount I was to receive. I received that amount less taxes. Which means the Federal government already has almost 1/3rd of my separation pay. For DFAS to collect the gross from my retired pay means I am paying the Federal government the 1/3rd it already collected in taxes plus the gross amount. I believe that is an incorrect interpretation of the law and I am being penalized for taking the separation pay.

    I understood up front that I would have to repay the separation pay I received if I received retired pay and had no problem with that. I was NOT told DFAS would collect the gross in addition to the taxes already withheld. If it was only 1 or 2 thousand dollars I would not be as concerned, but it is over $30,000 and I am upset about that.

    So, would can MOAA do and what can I do?

    Oh yes, did the U.S. Supreme Court ever declare that separation pay was not to be taxed/

    Thank you.

  14. Steve Cornickon 10 Sep 2010 at 1:20 pm

    In the 1970′s, I received separation pay after being twice passed over for promotion. I reverted to enlisted status and served to 20 years and retirement. The government collected back the gross amount of my separation pay before commencing my retired payments. When I filed my tax return that year, I explained to the IRS that what the government had done was make me a loan (the separation pay) and therefore the transaction was not compensation and so not taxable. I deducted the amount of the taxes that I had paid on the “loan”. This was fully and openly submitted to the IRS with my tax return. They never challenged it.

    I also sued the Air Force over the pass over. They corrected my military records to show that I had served that final 4 years in my commissioned status as a Captain. And I was compensated (taxable) for the difference between my enlisted pay and what I would have been paid as a Captain. (But that’s another story.)

  15. Rick DeChaineauon 10 Sep 2010 at 6:46 pm

    Unless I’m missing something, the amount of taxes actually KEPT by the govt (as opposed to the amount initially withheld) depends on the person’s income tax situation for the year they received the Pay.

    It’s possible someone could have had taxes withheld from Sep Pay, but because of their overall taxable income for that year, together with tax deductions, etc., actually received most (or less likely, ALL) of the amount withheld back in a tax refund.
    While the initial percentage withheld for taxes would be standard, the amount of that withholding kept by the govt or refunded to the person will vary with individual tax situations.

  16. LCDR Nethertonon 11 Sep 2010 at 12:24 am

    I wonder if anyone could give the chapter-and-verse on the rules that govern the case that COL Belanger laid out? It fits me, and I’m confused.

  17. Shane Ostrom, CFP®on 11 Sep 2010 at 9:35 am

    On the tax issue…

    The Service pays a gross (pre-tax) amount of separation pay to the member. Just like every company pays a salary in gross amounts in a paycheck. Let’s say $30,000 for example.

    Service member pays tax because it is income and receives a net amount, say $24,000. Just like a paycheck. We all pay taxes on income.

    Service member earns retired pay later.

    Separation pay and retired pay both paid on same service time. By law, this is not allowed. Many disagree with several aspects of this concept but this is the way it is at this time. Separation pay now considered an “advance of retired pay.”

    The Service paid member $30,000 of “advanced retired pay.” The Service didn’t pay $24,000. The hole in the Service books is for $30,000.

    If you owned a store and you advanced an employee $30,000 in pay and they paid taxes on the advance because it is income, you’d want back your $30,000; that’s what you are owed. So you would dock the employee’s pay until the $30,000 was recoupped. No money would be exchanged during the recouping period so no taxes are paid. The employee is not paying back the money. The employee got the money and kept it. The employee just got paid early and gave up future pay to get the advance.

    You haven’t paid taxes twice because the advanced amount is being “withheld” from your retired pay. You aren’t “paying back” so to speak, you took an advance on future pay. Taxes are paid for money paid. Having money withheld means no one is being paid; no money is exchanged between parties. You aren’t paying taxes for having money withheld from you. You simply got paid early and now you’re not getting paid for the amount you got early. No one pays taxes on money you’re not paid.

  18. Mark Parison 12 Sep 2010 at 3:27 pm

    On the issue of tax withholding: I was given an involuntary separation pay of $30,000, and paid taxes on it. Now they are recouping that money from my retirement pay, but they are taking it PRE-TAX, which means even though they are “withholding” $1420 per month, it’s only (only!) making a difference of $1200/month in my retirement pay; this is their way of acknowledging that I already paid tax on the money.

  19. M Ehrichon 13 Sep 2010 at 1:17 am

    I was involuntarily separated from active duty and later joined the Reserves and received my 20-year letter. I am not due to receive retired pay until I reach 60 which will be 10 years from now. I now receive VA compensation of 80 percent at the 100 percent rate for being unemployable. They have been recouping my separation pay for years and will continue for probably the next dozen or so years until it is finally paid off. When I reach age 60 and receive retirement pay will I have to have my separation pay recouped again?

  20. Shane Ostrom, CFP®on 13 Sep 2010 at 7:18 am

    No.

  21. Sam Youngon 13 Sep 2010 at 9:33 am

    Shane, your 11 September explanation is very much appreciated and appears to be on target. I have been thinking about it for the past 12 hours and can see your point.

    Thank you for considering our singular points of view and providing informative feedback.

    While part of me (the pocketbook) does not want to agree with you, mentally I am coming around to the accuracy of what you say. While I may not like paying back the gross amount AND the taxes initially paid on the gross, it does appear to be the correct thing to do.

    To my fellow receipients of separation pay, I wish the finance folks had explained this to us at the time we were offered separation pay. It would have greatly assisted our decision to accept or reject the separation pay.

    Sam

  22. Bert Godlewskion 16 Sep 2010 at 1:08 pm

    Sam, The right thing to do is DFAS revises the W2s for the past years and we file a 1040X and get our tax money back but DFAS won’t do that. (I asked, it just blew their little bean counting minds.) In these days of giving money to any illegal that crosses the border and pops a kid or doesn’t work for 99 weeks at a whack it just pisses me off that I am paying back money I never received. No matter how you slice it, there is no SME in PERSCOM or DFAS. I still have a reserve obligation until age 72 for accepting VSI and therefore I should also get 15 points a year and at age 60. I should and will reapply for reserve retirement. I will have more points and be at the current pay scale. I know that DFAS and PERSCOM will be like retards chasing butterflies when I drop that paperwork but it is very entertaining watching these idiots who are wrapped tighter than an airport sandwich lie make up the rules as they “think” they should be!! They couldn’t tell us back then because they had no idea then and remain clueless now. They (PERSCOM) never mentioned that VA would also being screwing us out of that benefit. A SM who spent 3 years gets to keep his VA compensation for disability but one that served 30 + years and five deployments loses it because he reached retirement after being plucked out of civilian life four times! Geeez!! DFAS PTSD = Paying ‘Til Servicemember Dies …

  23. Kevin Tremitiereon 01 Oct 2010 at 10:25 am

    What ever happened to Contract Law. When I accepted the terms ” early out” with the incentive of a cash bonus, it was an offer/acceptance transaction with myself and the US Government. I fulfilled my part of the agreement and the Congress was able to meet targeted numbers under the Clinton Administration. I have a 40% Disability from the VA and now must pay back ALL of the Bonus. They offered the incentive and I exited the military….. end of story. My physical disability has NOTHING to do with a legal contract between me and the government. Simple ” breach of contract. The government did not meet the contractual obligations – I did. Someone has to see this as a simple case of misrepresentation and fraud to the serving members of the US military. Shame on Uncle Sam. Does our seperation payback REALLY put a dent in the overall budget v billions spend on bank bailouts, paying lobbyists, design of a new bomber/next generation fighter jet………

    I hope someone, someday takes on this unpopular task and makes things right with this issue.

  24. b. statonon 11 Oct 2010 at 11:25 am

    If DFAS paid 28% for me in taxes when I received my separation pay and want the gross back, then the IRS should pay my taxes back I paid on gross.

  25. Charmaine McAbrewon 12 Oct 2010 at 2:01 pm

    Perhaps I missed this in the conversation, so to clarify: If I am passed over twice, become separated involuntarily, and receive separation pay, will I have to paythat back if I join the Reserves and eventually retire? Also, if I receive disability from the VA, will they begin taking that money back from my disability pay?

  26. Sam Youngon 14 Oct 2010 at 10:30 am

    You all have good points.

    I am awaiting a response from DFAS via my congressman regarding this issue. That will help me identify a direction to pursue this unfortunate chain of events.

    I knew I would have to pay back what I received. Unfortunately, the pay clerks at out-processing did not address the taxes and payback of the gross not the net.

  27. Travis Cundiffon 01 Dec 2010 at 12:19 pm

    I have recently been medically retired from the air force and recieved a seperation pay. After recieving the separation pay I submitted a disability claim to the VA and recieved 70%. Now that I have recieved the disability the VA is taking a portion of the disability to pay back to separation pay, about 50% of the amount. Now the problem is that i’m recieving letters from the DOD that is in a threatening nature stating that I need to pay back the separation pay, which i’m already doing through the VA. I have called the DOD and told them that i’m paying it back and have proof through my bank account and a letter from the VA stating that they are taking a portion of the disability to pay back the sep pay, but the DOD personnel arn’t listening and say that they have no record of this. My credit score is already being affected and they are threatening get a collection agency involved. I just don’t understand i’m already paying it back and it will all be payed off by Sep. 1, 2011…. somebody please help!!!!!

  28. Christopher Araizaon 03 Jan 2011 at 12:25 am

    The taxes that were taken out of my involuntary seperation pay…can I get that money back when I file my taxes? Anyone know the answer. thanks

  29. Shane Ostrom, CFP®on 03 Jan 2011 at 7:19 am

    No you can’t. Those taxes are considered payroll taxes since the pay is considered advanced retired pay.

  30. Frank Dolcateron 04 Apr 2011 at 3:32 pm

    Where in public law does it say that separation pay is an advance of retired pay? It is interesting to note that the DFAS pay manual treats separation pay and retired pay as two separate entities.

  31. Bert Godlewskion 08 Apr 2011 at 11:49 am

    Another interesting tidbit…why is VSI reported on a W-2 if it’s an advance on retired pay but retired pay is a 1099-R? Could it be because we performed a service to “earn” VSI, (left active duty and stayed in the selected reserve?) If so we earned it under contract it should not be taken back. Now I still can’t get anyone to add my retirement points (15 per year) on my record after retiring from active duty. Since I am still receiving VSI, I am holding up my part of the contract by remaining eligible for recall until my VSI runs out. I have not been legally, informed in writing, that I am off the hook for the remaining years. Any thoughts from the gallery??

  32. Frank Dolcateron 12 Apr 2011 at 12:37 pm

    Another point: Mr. Ostrom is not entirely correct. You can claim your repayment under certain circumstances as a claim of right. The goverment’s position that this is an advance on retired pay IS NOT in public law anywhere. Their argument is that if you retire you didn’t use the funds to “transition.”

    Bull…in my case I retired from the Reserves (a part-time job) and became eligible for retired pay 18 1/2 years after I received my separation bonus. I was without a job for 4 months immediately after separation and did use those funds to pay for my “transition.”

    Also interesting to note that where the IRS has disallowed the deduction for a claim of right…the IRS lost those cases on appeal to the circuit courts. They are 0 for 2.

    If you are going to go the claim of right route I would strongly suggest you consult a tax attorney before doing so.

  33. rich mohnon 29 May 2011 at 12:20 pm

    The whole SSB/VSI payment recoupment should be stopped period and any service member that received it, be paid back in full. I took an SSB in 1992 during the draw-down. I had around 9 years 3 months active duty NAVY and then had to go into the IRR for 3 years as part of the SSB requirement.

    I have seen it said in different places, that it was for folks who had 15+ years to try to get some of them to leave before 20. Maybe that came after I took it.

    I do not expect to get things for free, however as part of me taking the SSB I couldn’t be on any type of medical hold and there was a limited time window to take the bonus and leave the service. I wanted to get out anyway for my family and sea duty tour lengths and such anyway, so instead of taking a selective reenlistment bonus, I took some money and got out instead.

    After I left the service I tried to go back into the reserves and was denied due to hearing loss and a contracture in my hand. The Navy rated me 10% disabled due to the contracture, problem is I had already had a surgery on it once before I ever left active duty, so a nice catch 22 there.

    If I would have taken medical hold…no SSB and I wanted to get out anyway due to wanting to move on. The SSB was to help out the service member as well as the different branches that made it available, so the government is just as much at fault in this whole mess, and they should have had no medical waivers and such before giving SSB.

    They are currently recouping my SSB before I will ever start getting the 10% disability payment.

    I really don’t need or care about the 10% money, but feel for the Veterans that are being denied retirement pay, etc.

    I just wanted to post my case as another example of how SNAFU’ed the government is and how laughable it is that now they want to take over even more control of nationwide healthcare…good luck with that!

  34. Gregon 17 Oct 2011 at 4:42 pm

    DFAS takes “BEFORE” tax dollars from your retired pay for repayment of the separation pay. If you are not in the situation of paying back VSI than you would have to pay taxes on that portion of your retired pay like anyone else. It is a wash; you are not paying taxes like you normally would have to. Actually in my case these many years later it is an advantage. I am in a much higher tax bracket then in 1996-2007 when I received the yearly payments and due to inflation the dollar is worth less. Plus you had use of that money all those years.

    No one is getting screwed, it was made very clear that my VSI would have to be paid back if I ever earned at regular retirement. I have not received anything from the VA yet, if they take “net” then no issue. I am not sure how they calculated the “net “.

    There is no reason I can think of that the taxpayer should be required to pay any military member two retirements for the same period.

    These comments are based on my situation and VSI

  35. Jennifer Hilliardon 15 Nov 2011 at 8:20 pm

    I am having a hard time finding information on an estimate of how much taxes will be taken out of my husbands Separation pay. We were not planning on him getting out so his separation pay will be our only income until a new career is found so I am seriously stressing not having even an estimate of how much taxes will be taken out. Any help will be greatly appreciated. God bless.

  36. RAon 24 Apr 2012 at 10:20 am

    It is also important to point out – - if you have any kind of VA disability and are receiving pay for that EVERY PENNY GOES BACK TO PAYING YOUR VSP. I know this article is primarily talking about involuntary SP…but even Voluntary should not be paid back through VA disability. I can understand paying it back if I ever got back into the guard/air reserve….that would be understandable. But to take $$ from disabilities I suffered from while on active duty seems beyond heartless and downright wrong.

    This is anothe issue the MOAA needs to take up

  37. Julianneon 17 May 2012 at 2:56 pm

    Wow, we are learning this the hard way! I thought I was going crazy until i found this article. My husband was getting involuntarily cut from AGR and they told him that his “severance pay” pay would have to be paid back at 40%. This money would come from his M-Day retirement. So it is ok to work two jobs for the government but you can only get paid for one and if you get cut from one they pay your severance with the retirement from the other. I am scratching my head.
    So…

  38. Johnon 16 Jul 2012 at 11:44 pm

    Anyone sought legal representation based on the October 2007 Letter from the Secretary of the Air Force waiving the recoupment of disability payments in order to entice more officers to take the VSP in 2007 to 2008 time frame?

    I based my decision to take the VSP on this letter vs. staying in and going through an MEB. Now the VA has told me this Letter from the Secretary of the Air Force was not valid and I have to use my VA disability benefit to payback the VSP amount. Paying back disability benefits are an injustice and borderline discriminatory towards disabled vets.

    Any others out there is this situation…if so please post.

  39. DeQuenna Faulkon 14 Aug 2012 at 4:18 pm

    I received Severance pay in 2005. I was medically discharged. The VA rated me at more than 30%. I was forced out the military I did not volunteer to leave. My concern is if you have more than 12 years in the military and you are forced out in good standing than you are entitle to Severance Pay, So why should a soldier who was medically forced out the military with more than 12 years have to pay back Severance pay even if they have a VA rating? This is something we have earned over the years and it was not an easy task. With Severance pay you can not draw unemployment, since they are taking the Severance pay back than can I go back and draw my unemployment for that period?

  40. Michael R Dowdon 27 Aug 2012 at 12:44 pm

    Thank you for your information. I spent 11 yrs, as a civilan. I would think that I used my separation pay as it was intented for. I did not sign anything that said that the sep. pay could or would be use for advance of retired pay.
    If it’s retirement pay,why is it being taken out of my VA compensation pay, that I earn for my one year of actived duty with the guard, not while I was on actived duty as a Marine.
    Thank You
    Michael R Dowd

  41. John N.on 09 Sep 2012 at 6:29 pm

    I have been looking for info on this issue of SSB payback when I came across this website. I recently received a letter from the VA stating that my disability comp will be used to payoff the net SSB amount. I knew that when I retired from the reserve that I would have to pay back the SSB amount but didn’t realize until I read Chapter 4 (website below) that I would have to use my retirement pay to payback the gross amount, before taxes. I think the VA only recoups the net amount because you don’t pay tax on VA disability compensation and the DFAS recoups the gross amount because you do pay income tax on retirement pay (depending on where you live). Chapter 4 stated that when you have 40% of your retirement pay deducted to repay the SSB bonus (in my case) that this amount is not reported to the IRS as taxable income at the end of the year. The amount you report for taxes is your retirement income minus the amount used to payoff the bonus. I guess this payback amount is not taxed by the IRS because the bonus was already taxed when you received it. By not taxing the amount of payback, the amount you pay is more and the time of payback will be shorter. Does that make sense? I’m having a somewhat difficult time wrapping my head around it too. But I have to put on my warped government thinking cap and try to understand why they are doing the paybacks this way. The website I looked at was http://comptroller.defense.gov/fmr/076/076_04.pdf . Check it out. My original reason for surfing was to try to find out at what rate were these bonuses taxed. I think it was 28% but I can’t find any thing in writing. Any help? Thanks.

  42. Shane Ostrom, CFP®on 10 Sep 2012 at 7:20 am

    John N, You’re taxed at ordinary income tax rates upon receipt of the separation money. It’s whatever your income tax rate is at the time of receipt. There is no tax event upon payback because there is no money exchanging hands between you and DFAS or the VA. They just aren’t paying you and there is no taxable event for not being paid.

  43. Seamus O'Hearnon 28 Sep 2012 at 12:32 am

    Yes. When it comes to separation pay, it’s all in its name. First I’ll explain the law and DOD policies on this issue. The MOAA position will follow.

    Separation pay is given to members separated early from the Service. It is intended to help the separating member transition to civilian life. The point being, the member leaves the Service. That’s why a separated member who actually separates doesn’t re-pay the separation pay, because the money was used as intended.

    On the other hand, a member who returns to the Service in some other form, and becomes eligible for retirement, didn’t separate from the Service as intended. Under this situation, the separation pay, which wasn’t used to separate, is now considered an advance of retired pay—a key difference in the nature of the pay. By law, you can’t be paid twice for the same service. Separation pay is a form of retired pay in lieu of actually retiring. You were already paid for your previous service and now you’re using the same service to qualify for actual retirement.

    ARE YOU KIDDING ME…DO U ACTUALLY BELIEVE THIS? I separated and didn’t work for 8 months…so, by your definition, I DID use the SSB for it’s intended purpose of “transition.”
    Your last sentence…come on man, if u think $79,000 gross covers 9 years ANG and 13 tears active duty, not to mention, the whole SSB was to intice service members to leave AD and join the guard/reserves….well, I guess I’ve got some swampand for ya!! And by the way, it was never “pay” of any kind, it was a LUMP SUM BONUS that was taxed and never allowed to roll over into any retirement fund. This is the old “cake and eat it too.” Besides, why would our government want to reward those who served. Hell, today most Americans don’t even know we have a military, much less two wars going on!!!

  44. Seamus O'Hearnon 28 Sep 2012 at 12:34 am

    and I’m a life MOAA member….what was I thinking….

  45. Mike Non 05 Jan 2013 at 1:11 pm

    I was in the Air Force for 11 years and was involuntary separated in 1992 due to not making SSgt. I received about $15,600 in separation money and then joined the Air Force Reserves and did 11 years with them and retired as a TSgt in 2003. So I did 11 years active and 11 reserves and will get my retirement money when I turn 60 in 2020.

    I have heard that you will only have to pay 40% back. Reading other post and comments and info form military pay is that they will only take out 40% out of each retirement check until the entire amount is paid back.

    So my confusion is: Do I only pay 40% of the $15,600 back or they want the entire $15,600 and they will only take out 40% out of my retirement check each month?

    If anyone has an answer please E-Mail me at MARCHAFB@HOTMAIL.COM

    Thanks

  46. James Piersonon 09 Jan 2013 at 9:56 am

    Be very careful with the VA recoupment of separation pay. As a regular officer, I was involuntarily separated in July 1990 as part of the drawdown. Received the 30K separation pay and entered the reserves, serving another 17 years and three deployments. Ultimately qualified for retirement at 60, not there yet. Upon entry into grey area retirement was rated 40% disabled by the VA. They then started recouping 100% of disability pay.

    Here is the WARNING. The disabilities were all incurred AFTER the period the separation pay was based upon. The VA is specifically prohibited to recoup the separation pay from disabilities incurred or aggravated after that period of service. I filed an appeal that took over two years to resolve, and that was only through a multitude of phone calls. You can fight and get what is deserved now, and pay later as allowed by law with future dollars (worth less not worthless), or rollover and let them take advantage of you.

  47. Shaunon 30 Jan 2013 at 8:53 pm

    My situation is similar but the only difference is that they are recouping my disability pay. My question is, instead of recouping retirement money, which gets taxed as income, so it is an advance on retirement pay. Mine is an advance on disability pay, so it should be non taxable and subject to be refunded or dropped from my annual income (w-2), right?

  48. Shane Ostrom, CFP®on 31 Jan 2013 at 6:36 pm

    Shaun, If separation pay is being withheld from VA disability compensation, the after-tax (net) amount of separation pay is withheld. If sepaprtion pay is withheld from taxable retired pay, the gross pre-tax amount is withheld. Shane

  49. Dave Bon 04 Feb 2013 at 1:07 am

    This message is to Shane Ostrom, or to anyone else who can answer my question. I received AF separation pay of around $56 K in 1998, and paid income taxes on that amount. I returned to active duty in 2003, and retired in 2010. As expected, DFAS is now deducting money from my retirement pay. Your explanation in your Sep 10 post still doesn’t make sense when you say “there’s no tax event for not being paid”. To me the possible “tax event” for each year I pay back the full (gross) amount of my separation pay is that I have a “negative” income for the gross income that is being recouped. For example, if DFAS recouped $10K from me in 2012, I am returning a full $10K in income I received (less federal taxes) in 1998, even though I didn’t receive that full $10K. There may be a way to account for this with the IRS. Page 33 of IRS publication 525 discusses taking an itemized deduction for “income repayment”. Since that $10K was reported as regular income in my 1998 taxes, maybe I can now list that $10K I paid back in 2012 as a miscellaneous deduction on line 28 of Schedule A. The $10K I’m paying back in 2012 is essentially a “negative income”, so it should reduce my taxes in 2012, and in the remaining years I’m paying the separation pay back. Does this make any sense to anyone? If I’m not able to list my military separation pay “repayment” as a negative income (or deduction) on my taxes for 2012 (and future years), then I’m not just paying back the separation pay that was previously given to me. I’m also paying back the income tax portion of that money, even though I never actually received that money.

  50. Shane Ostrom, CFP®on 04 Feb 2013 at 8:04 am

    Dave B, this is explained in the article and in several responses to comments. It is not “negative income” as you state. There is no such thing. You are having an amount of your income “withheld”–in other words, you are not being paid. There is no taxable event for not being paid anything. You were paid taxable income in the separation pay and you paid taxes. Now you are not being paid.

  51. Dave Bon 05 Feb 2013 at 9:46 am

    Stu,

    OK, maybe the term “negative income” is not the right way for me to explain what I’m saying. How about if I suggest another solution to the tax situation for this separation pay (and subsequent recoupment). After I have had my $56K in separation pay “recouped” the next five years, couldn’t I go back and amend my 1998 income tax form (if it’s posssible to amend a tax form that long after the fact) to subtract the $56K in gross separation pay at that point? If I pay that entire $56K back (even if that money is paid back many years later), then why can’t I at least amend that 1998 tax return and get the taxes back on that $56K separation pay amount since (once that pay is “recouped”) I never really received that amount. (It will all be paid back from my retirement pay from 2012 through 2016 at the current rate of recoupment). You state that “there is not a taxable event for not being paid anything”. Once I have paid off the entire $56K in separation pay that was given to me (less taxes) in 1998, I was not paid anything (in separation pay) for 1998. So, its seems to me that I should at least be able to amend that 1998 tax return, if I can’t list the separation pay recoupment amounts in the actual tax years that I’m paying off that separation pay.
    Thanks

  52. Dave Bon 05 Feb 2013 at 11:09 am

    Stu,

    One more update on my previous post…I guess my idea to amend my 1998 tax return after I repay all my total separation pay won’t work. After a little online research, I see you only have three years to amend a previous year tax return. I’m going to continue to research my options for the current and future tax years in which my previous separation pay was/will be recouped. Your assessment may turn out to be the correct (although unfair) answer to this question about the situation where I have to repay the entire separation pay, even though I paid income taxes on somewhere between 15% and 25% of that amount (depending on what my overall tax rate was for that year). Since I am not required to pay interest on that separation pay I received in 1998, the IRS may have determined it’s “fair” to require me (and everyone else in this situation) to pay back the entire gross amount, even though we didn’t actually receive the entire gross amount. I’m not going to give up yet. I plan to try to contact the IRS to discuss the “income repayment” section of IRS pub 525, to determine if this “income recoupment” of my 1998 separation pay qualifies as an “income repayment” as discussed in the refererenced IRS pub (which I mentioned in my 4 Feb post).

  53. Bert Godlewskion 20 Feb 2013 at 10:19 am

    There is a thread here with the answer. Right of Claim. IRS pub 525 & 529 cover how to deduct or get credit for the repayment of wages. You calculate two methods and use the one most advantageous to the taxpayer. Repayment can be reflected as either a misc deduction or a tax credit which ever works best for you. Your RAS showing your “debt” and your annual VSI statement showing the running total of the payback are the documents you need to have. It is exempt from 2% AGI threshold you have to do some math every year to get the amount. Now has anyone seen their W2 from DFAS for VSI YET? It was transition money not an advance on retirement.

  54. Maryon 28 Feb 2013 at 12:16 pm

    Ok, here is my delima, I took the SSB in 1992, I filed for my VA disability in 2011 and approved in 2012 – like everybody else I have to pay back the amount received except taxes — but in my case the Air Force withheld an addional $12,000.00 of the bonus amount, and it does not show any where that this money was withheld – DFAS may no longer have records due to the age (20 years) and I cann’t make a claim becasue there is a limit of 6 years, yet I’m to payback money I never got. What I do have is my LES, a copy of my bank log showing the check I did receive and of course my W-2 to show the money is not applies to the taxes — I can’t remember why it was withheld either — so anybody have any info on this subject!!

  55. Dave Bon 15 Mar 2013 at 3:04 pm

    Just one more note on this subject to add to my previous posts…while I at first came to the conclusion that Bert G did, in his 20 Feb post on this subject, I eventually decided I was not able to claim a deduction for the “repayment of wages”. I now concur with Shane Ostrom’s posts. (Sorry, I incorrectly addressed him as “Stu” in a couple of posts!) Let me try to better explain why I now think Mr. Ostrom is right. If I were actually writing a check to the government to “repay” my separation pay, then I think I should be able to declare that payment as a deduction for “repayment of income” as Bert G explained. However, as Mr. Ostrom pointed out, I’m simply not being paid a portion of my retirement pay. Part of my retirement pay is being withheld because the law concerning goverment military separation pay payments clearly states that the US (through DFAS) can “recoup the money” if you eventually collect military retirement pay. We can certainly argue about whether this is a fair policy, since many people who receive a forced separation from the military need that money during their transition to another job, and I don’t think that money should ever be treated as “advanced military retirement pay”. However, the law is what it is. The current law effectively changes the definition of this separation pay to “advanced military retirement pay” if you are later eligible to receive military retirement pay. So, the approximately $10K (gross) pay that was withheld from my military retirement pay in 2012, “recoups” to the US government $10K of the gross separation pay I received when I first separated from active duty in 1998. Anyway, this is all confusing, but the bottom line is my taxes for 2012 will be much higher than I had thought they would be, since I don’t believe I can take a deduction for “repayment of income” since I didn’t literally “repay” the income by sending the US Treasury a check. The approximately $10K withheld from my mil retirement pay in 2012, is just a part of the $56K that will ultimately be withheld from me over the next few years since that portion of my mil retirement pay is now (by law) considered to be “advanced mil retirement pay” which I already received back in 1998. The lump sum payment (less taxes) that I received in 1998 is no longer treated as “separation pay” but is now basically treated as a very early “advance” of my post military retirement pay. So…I wish I could agree with Bert G’s post. (It would save me a lot of tax money.) But…I have to now agree that Mr. Ostrom’s explanation of the situation is correct. DFAS will continue to recoup a portion of my mil retirement pay till they have completely “recouped” the $56K in gross separation pay I received in 1998. There’s no tax benefit I can claim. I’m simply earning less taxable retirement pay for the next few years until the entire $56 K of my previous separation pay is completely “recouped”.

  56. woodyon 04 Apr 2013 at 12:56 am

    since this has been happening to who knows how many people since the early 90′s and MOAA says they can not get traction up on Capital hill why dosn’t MOAA offer up courses of action to get this changed like we were all trained to do…why are we seeing congressman? why are we organizing on social media? why are we doing a class action lawsuit like all of the OTHER aggrieved parties in this country do. I agree with most posts on here. I think we were duped. I would have been 100% better off never coming back into the military after 9-11 to help fight the war on terror. If I would have stayed at my jobs I would have been 150,000 richer than I am now. I am very upset by this and it reminds me of the bonus marchers in 1923 when our ARMY was sent to crush the vets in Anacostia when they demanded their bonus be paid albeit ahead of schedule. We do we fight this injustice? We isnt MOAA doing better on this issue that obviously affects many people. What say the lawyers in this group or at MOAA?

  57. Diane Morrisonon 29 Apr 2013 at 12:22 am

    The VA is dead wrong for the recoupment of SSB/VSI payment from vets who did not retire or go back on active duty. Let me remind you that we gave up the time left on our enlistment in exchange for the SSB/VSI payments, so I believe that DOD and the VA are in violation of our enlistment contract. The military could not just end our enlistments contract without just cause. We agreed to give up the remainer of our enlistment contract in exchange for the SSB/VSI payments. The law thats being enforced is “prohibition against duplication of benefits” in other words double dipping. The law doesn’t need to be changed by congress, VA needs to learn who to apply the law to. Everyone who received the payments did not break the law just because they start to receive VA compensation. Receiving SSB and leaving the military Voluntary is not the same as receiving VA benfits. VA benfits are for disability substained while on active duty and being compensated for those disabilities.
    “Separation pay is given to members separated early from the Service. It is intended to help the separating member transition to civilian life. The point being, the member leaves the Service. That’s why a separated member who actually separates doesn’t re-pay the separation pay, because the money was used as intended” Lots of vets did use the SSB/VSI payments as intended, so could someone please explain why the payment is being recoup? We do not need to be upset with the VA, the money is being recoup by them but I believe that the money is being refunded to the DoD back to the orginal fund where the money came from. Yes there was and maybe still is a special fund that was setup to fund the SSB/VSI programs.

  58. COL Brad Turner, Retiredon 29 Apr 2013 at 3:48 pm

    I received a separation pay after 9 years of AD because I applied for a voluntary indefinite status and was denied. I later finished my time (37 years) in the Guard and Reserve. This is a very STUPID situation.
    Example: You got $30,000 in separation pay. Let’s say that $3000 was paid in federal taxes. The US govt really just gave you $27,000 because they kept $3000.
    Now they want you to pay back all $30000!!! Does anyone else see the problem with this? The part that they withheld for social security and state taxes, I understand, but the Federal Tax they simply kept in the treasury.

  59. Shane Ostrom, CFP®on 30 Apr 2013 at 11:50 am

    COL Turner, I explain this tax situtation in the article and in several of the other comments I made to other peoples’ comments. It does make accounting sense and doesn’t cheat anyone. Shane

  60. Diane Morrisonon 01 May 2013 at 11:17 pm

    # Diane Morrisonon 29 Apr 2013 at 12:22 am

    The VA is dead wrong for the recoupment of SSB/VSI payment from vets who did not retire or go back on active duty. Let me remind you that we gave up the time left on our enlistment in exchange for the SSB/VSI payments, so I believe that DOD and the VA are in violation of our enlistment contract. The military could not just end our enlistments contract without just cause. We agreed to give up the remainer of our enlistment contract in exchange for the SSB/VSI payments. The law thats being enforced is “prohibition against duplication of benefits” in other words double dipping. The law doesn’t need to be changed by congress, VA needs to learn who to apply the law to. Everyone who received the payments did not break the law just because they start to receive VA compensation. Receiving SSB and leaving the military Voluntary is not the same as receiving VA benfits. VA benfits are for disability substained while on active duty and being compensated for those disabilities.
    “Separation pay is given to members separated early from the Service. It is intended to help the separating member transition to civilian life. The point being, the member leaves the Service. That’s why a separated member who actually separates doesn’t re-pay the separation pay, because the money was used as intended” Lots of vets did use the SSB/VSI payments as intended, so could someone please explain why the payment is being recoup? We do not need to be upset with the VA, the money is being recoup by them but I believe that the money is being refunded to the DoD back to the orginal fund where the money came from. Yes there was and maybe still is a special fund that was setup to fund the SSB/VSI programs.
    (Shane Ostrom)

  61. "Retire" SFCon 21 Jun 2013 at 12:50 am

    How can the Government bail out all of these companies and they won’t give us a fair deal on our seperation pay. The PEB and MOAA and the rest of them are working aganist us that gave so much. The Army seperates most of their people with 10-20% disability severance pay and not retirement. There is a catch to the seperation pay, and you don’t have to be a genius to see it. That is why they won’t being this action to the house for a vote or action to be taken. Shame- shame, shame on them. I just took the severance and called it quit. It sounded like a joke was being played on a lots of service menbers.

  62. BryWon 02 Sep 2013 at 11:54 am

    Okay…who can answer this. I was involuntarily separated with 13.5 years Active Duty and received Sep Pay and filed a VA Disability while I was still active duty and joined the Ready Reserves. This Sep Pay was mine regardless if I joined the reserves. After talking with ready reserve people (and reading websites like these), I’ve been told that VA will re-coup my ready reserve pay for 2 months during each year I signed up for. Is it even worth doing ready reserves? Ready Reserve status doesn’t affect my Sep Pay or vice versa, correct? I’m not going to work for free is what I’m saying…I go to drill for free and the VA takes monthly disability payment (which I’m still awaiting for a decision). If I quit or miss drills, Sep Pay is mine without re-coupment?

  63. Shane Ostrom, CFP®on 03 Sep 2013 at 9:14 am

    BryW, recoupment of separation pay comes from retired pay or VA compensation according to the DOD Financial Management Regulations. We have not heard of or read anything about separation pay recoupment from Ready Reserve pay. Serving in the Reserves or Guard is not a condition for separation pay recoupment. Retirement is. VA compensation is. If your goal is to serve in the Reserves to reach retirement eligibility, you will pay back the separation money one way or the other…Shane

  64. Bert Godlewskion 09 Jan 2014 at 6:12 pm

    I was right and the IRS upheld my contention. It’s not a debt or recoup, it’s an offset. For the guy that does not believe in “negative income” try this:
    20% VA Disability coupled with Army retiree and VSI recipient. You get one dollar from VSI, Retirement does not give you a dollar and VA doe not give you a dollar. So for every $ you get in VSI, you lose $2. In Obamanomics that’s “hepping da ‘con’o'me” grow. For real people, that’s getting hosed. MOAA is so far off on this issue, it’s not funny.

  65. JoAnn Hortonon 22 Jan 2014 at 11:46 am

    I am so tired of being cheated by the Government. I was involuntarily discharged from AGR Active Duty in 2000. At that time, I already had my 20 year letter and had served 25 years in the Army Reserve. Since I was involuntarily discharged from AGR, I was given half separation pay ($29,000+) taxed at 28%, so I only received $26,000. I applied for disability and was awarded 40%. The VA took my ENTIRE disability check for 5-1/2 years to repay the separation pay, I fought with them the whole time, but they still took my money. I was finally given my disability pay in 2006. Now 13 years later, I am eligible for Army Reserve Retired pay and now DFAS is taking almost half my retirement
    check to pay back the TOTAL amount of the separation pay. I have a real problem with this, first of all it is 13 years later, second I have proof that the $8472 that they are recouping is tax money that has already been paid, and money that I never received. I hired a lawyer, but that did not help the matter, DFAS is still taking my money. I don’t care how anyone explains it (Shane Ostrom ,CFP) I should not have to pay this money twice and I should not have to pay back money that I did not get. And people who are not in this situation can find all kinds of ways to justify it, but let the Government wrongly take your money and see if you won’t feel the same way. This is so wrong, the pain and suffering that I endured while in the Army still continues 13 years later and this matter is causing a tremendous hardship.

  66. Buccaneer 6on 04 Mar 2014 at 3:14 pm

    I’m in shock that the Government is recouping VSI from my retired pay. I will retire in Sept 14 with 22 years of active service and 32 years of total service. I like so many of you, I departed Active Duty during the drawdown of the 1990′s with 11 years of active service. We were required BY LAW to join the guard or reserves in order to receive our VSI. My reserve unit mobilized and deployed to Iraq. While deployed I was asked by very senior Army leaders to remain due to a shortage of my skills. Accepted the voluntary recall to active duty they were promoting. At that time I asked the question do I have to pay back VSI? The senior leader asked the Army G-8 who responded. “The way the law currently stands you will have to pay it back! But, the way we are throwing money around in Iraq I’m sure that will change”. I know that several years ago DFAS stopped recouping VSI payback, I mistakenly thought the law changed. Now 9 years later I’m told by finance that yes you will pay it back using 40% of my monthly retirement. The way we have wasted money in Iraq and Afghanistan on contractors, poor construction and over priced products is shameful. Plus, when I recalled to active duty they were giving some soldiers 150,000 dollar bonuses to re-up… WE NEED TO HAVE VSI CHANGED TO A BONUS REQUIREING ZERO PAYBACK

  67. A. Andersonon 10 Mar 2014 at 5:01 pm

    I have a “state” specific question reguarding VSI and state taxes. Colorado has a military retirement exclusion where persons who are over 55 may exclude up to $20,000 of their military retirement benefits received during the calendar year from their state tax return. Reading through the thread above (and other sites where VSI appears to be considered like retirement income in military divorce cases), it appears to me that (at least currently) there is an argument that VSI could be claimed as a military retirement benefit (for the purposes of military retirement exclusion from state income taxes). Anybody know of any case law or judgements that would challenge this position? Thanks

  68. Jason "Duck"on 30 Mar 2014 at 9:40 pm

    Ok so my claim is a little different than most. Ok so I filed my claim in august of 2013 and I did so while waiting to be medboarded from the reserves. Ok so I did two years active before it was shortcomed by an injury. I recieved a 20% severance for my injuries. Now I am wondering if perhaps I’m going to payed all the way back to my Active duty discharge date or If I am only going to be paid from august until my claim is completed. I’m open to any suggestions or comments please feel free.

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