Let’s talk about something that causes a great deal of confusion with our service members. I have noticed an uptick in this kind of issue in my region lately and believe it is time someone came out and set out the facts. The examples I use in this article are based on actual people who are just a few of those I have encountered lately. If I’m seeing it then I’m sure there are others of you out there who are dealing with the same problem. You might even be the one who is receiving both types of pay and wondering what to do about it.
This article contains a lot of numbers which I know can be difficult to comprehend, at times. I have developed a set of accompanying slides to make this easier to understand. You will find a link to the slides in the references section. Away we go.
Every component has its share of members who are currently serving and receiving disability compensation from the Veterans Administration. As many of us already know, VA compensation is not taxable. Military pay, on the other hand, is taxable. The law states that members can only receive one of these forms of pay. They cannot receive both.
Quick note: do not confuse this topic with Concurrent Retired and Disability Pay (CRDP). That is a topic for retired members. We are talking about people who are currently serving.
We must be careful not to confuse nontaxable as better. This is not always the case. The real question is what brings you the most money in the end.
That last statement about the most money is another point where we often see a great deal of confusion. What is greater: $300 in drill pay or $1600 in VA compensation? The answer is obvious, right? Not really. The drill pay number is for four days of duty and the VA number is for a full month.
Confused yet? Let’s break it down.
The key to understanding which of these types of pay is better for you is to divide it into the daily rate for each.
Before I do that, let me just state that those members who are waiving their military pay in order to receive VA compensation will not receive retirement points for the military duties they perform. Without points, they will not earn the minimum of fifty points per year they need in order to have a qualifying year for retirement purposes.
I know there are those who drill for points only but they are actually shortchanging themselves by doing this. Even the VA admits this.
Also, remember that there are other uses for retirement points besides earning a retirement after twenty years of service (which not everyone does). A retirement points statement is also used to determine eligibility for other service-connected benefits such as some awards, VA education benefits, VA home loans, etcetera).
Let’s look at our first example.
Let’s assume we have an E4 with six years of service and an 80% VA disability rating. The person, we’ll call him Specialist Jones, is married but has no children. In reality, this person was drilling for points only and receiving no military pay at all.
The monthly rate of pay in 2017 for an E4 with six years is $2,535.60. This breaks down to a daily rate of $84.52 which means he will receive $338.08 for a weekend drill (which pays four days of basic pay).
The monthly rate of disability pay for a married member at the 80% disability rate is $1,686.13. The daily rate for this rate of VA compensation is $56.20.
If Specialist Jones performs all of his monthly drills (four days of pay for each weekend) and a fifteen-day annual training, or the equivalent of sixty-three days of paid duty, he will receive a total of $5,324.76 in military pay. The amount of VA compensation for sixty-three days is $3,540.87. The difference between these two types of pay is $1,783.89 with the military pay obviously being the greater number.
I haven’t factored in the effects of federal and state income taxes on the military pay, as you can see. Even if I were to do that (let’s assumes 25% in total taxes and also include his life insurance premiums), Specialist Jones would still receive $104.70 more in military pay than he would in VA compensation for the same sixty-three days.
This example described a junior enlisted man and already we see a substantial difference in the amount of pay he can bring home. As I said earlier, he has been drilling for points only with the belief that VA compensation was the better deal over his total military pay. He came to my attention because he had approached his unit personnel wondering why he had a substantial debt for his Servicemembers Group Life Insurance (SGLI). This is yet another benefit he does not have at the moment because of his decision.
Let’s look at one more example. This is an O3 with eight years of service. We will call her Captain Collins. She is also married and has no children. She has a VA disability rating of 90%. Captain Collins has been drilling for pay for one period during each monthly drill – in order to cover the cost of SGLI – and for points for the other three periods each weekend and for annual training.
The monthly rate of pay in 2017 for an O3 with eight years is $5,940.90. This breaks down to a daily rate of $198.03 which means she will receive $792.12 for a weekend drill.
The monthly rate of disability pay for a married member at the 90% disability rate is $1,894.71. The daily rate for this rate of VA compensation is $63.16.
If Captain Collins performs all of her monthly drills and a fifteen-day annual training, she will receive a total of $12,475.89 in military pay. The amount of VA compensation for sixty-three days is $3,978.89. The difference between these two types of pay is $8,497.00 with the military pay obviously being the greater number. With taxes and SGLI premiums, Captain Collins would still bring home $5,030.03 more in military pay than she would in VA compensation for the same sixty-three days.
Okay, DJ, you’ve convinced me. How can I waive my VA compensation for the days I perform military duty?
Fortunately, there is already a way for you to do this. As with anything in government, there is a form to complete (naturally). At the end of each fiscal year, you should approach your unit personnel and ask them to assist you VA Form 21-8951-2. They will compute the number of days of pay you received for that fiscal year; you can do the same by keeping your Leave and Earnings Statements and looking in the remarks section.
After entering the number of days of pay you received for the fiscal year, have your unit commander or his designee sign the form. You will then check the box which states you wish to waive VA benefits for those days and sign the form yourself. You will then mail it to your VA regional office.
Once the VA has completed its work with the form, they will send you a letter stating the start and ending dates during which they will suspend you VA compensation. At the end of that time frame, they will resume paying of disability compensation as normal.
It’s really not that hard to do what is best for you. It’s a decision you need to make in order to receive the most money. Only you can make this decision. I am including a simple calculator in the references section which can help you figure out what is best for you. It’s an Excel-based calculator which only needs two pieces of information: your monthly base pay on the military side and your monthly VA compensation. The calculator also includes a simplified estimate of the tax effects and the cost of SGLI. I am also including links to the military pay tables and to the VA disability compensation rates.
I hope this has been a useful article for you. Please leave any remarks or questions you may have in the comments section below. If you believe this article will be useful to someone you know, please share it with them.
By the way, for those retirement services officers out there, you are welcome to use the slides and calculator to assist your service members with their decision. Just keep everything the same, please. Also, if you think of any improvements that can be made to either of them, please let me know.
Thanks for joining me today and, of course, thank you for your service. Have a happy Independence Day holiday.
2017 Military Pay Scale
December 2016 VA Disability Compensation Table
Should I Take Drill Pay or VA Compensation? (PowerPoint presentation)
VA vs Drill Pay Calculator (Excel)