CRDP vs CRSC: getting military retired pay and VA disability pay

Many military retirees also have a disability rating from the Department of Veterans Affairs, and the first VA payment often comes with a surprise: the retired pay goes down. That is the VA waiver, sometimes called the VA offset, and two programs created by Congress exist to give some or all of that money back: Concurrent Retirement and Disability Pay (CRDP) and Combat-Related Special Compensation (CRSC). Which one applies, whether you have to apply, and how each is taxed are the questions this guide answers.

I am on active duty in the Air Force, and these rules are part of the retirement conversation for anyone who has been hurt in service. Everything below comes from the Defense Finance and Accounting Service's own pages, listed at the end. DFAS itself calls these laws complex and confusing, so if your situation is unusual, call DFAS or your branch before acting on a general guide.

The starting point: the VA waiver

DFAS states the general rule plainly: a military retiree may not receive both VA disability compensation and military retired pay at the same time. Instead, the retiree waives military retired pay, dollar for dollar, to receive the VA compensation. The law is in Title 38 of the U.S. Code, sections 5304 and 5305.

In practice, if your gross retired pay is $2,000 and the VA pays you $800, the waiver takes $800 out of your retired pay and you receive $1,200 from DFAS plus $800 from the VA. You are not worse off in total, but you are not getting both in full either. CRDP and CRSC are the two ways to get some or all of that waived $800 back.

CRDP: concurrent retirement and disability pay

CRDP is the broader program for retirees with a high rating. DFAS notes that "CRDP" is not a term used in the law itself; it is the name for a limited exception that lets some retirees receive their retired pay and their VA compensation at the same time.

Who qualifies

For a retiree who did not retire under Chapter 61 (the disability retirement law), DFAS lists two requirements:

• Be entitled for any month to both military retired pay and VA disability compensation.
• Have a service-connected disability, or combination of disabilities, rated by the VA at not less than 50%.

Reservists and Guard members must be eligible to retire based on service, which DFAS describes as normally age 60, and the comparison chart lists retirement with 20 years of active or reserve duty.

How much

CRDP was phased in over ten years, from January 1, 2004, through December 31, 2013. Since January 1, 2014, eligible retirees (other than Chapter 61 disability retirees, covered below) may receive military retired pay in full at the same time as VA disability compensation. DFAS's example: a service member retires after 20 years with $800 a month of gross retired pay and is rated 50% by the VA at $1,200 a month. That retiree receives the full $800 and the full $1,200.

You do not apply for it

You do not need to apply for CRDP. When DFAS is notified of your VA compensation and you are eligible, it processes and pays CRDP on the regular monthly schedule. It is not a separate payment: DFAS describes it as an increase in your retired pay that shrinks your VA waiver, deposited to the same account, with no effect on what the VA pays you.

CRSC: combat-related special compensation

CRSC is narrower in one way and broader in another. It covers only disabilities that are combat related, but it starts at a much lower rating and is not limited to the 50% threshold. DFAS's eligibility list:

• Be entitled to or receiving military retired pay.
• Be rated at least 10% by the VA.
• Have waived your VA pay from your retired pay.
• File a CRSC application with your branch of service.

Reservists must be at least 60, or retired under the Temporary Early Retirement Authority (TERA). CRSC is available to both disability and non-disability retirees, and DFAS describes it as a tax-free entitlement paid each month along with any retired pay.

You must apply, to your branch

Unlike CRDP, CRSC requires an application, and it goes to your branch of service, not to DFAS. First-time applicants use DD Form 2860; if you are reapplying for new disabilities, request a reconsideration application from your branch. DFAS suggests applying if you think you qualify and never have, if you have been approved but have more disabilities that might qualify, or if the VA has recently added disabilities to your rating. It specifically mentions the VA's expanded coverage of conditions associated with Agent Orange. Send copies, not originals, and DFAS notes that the quality of the documents matters more than the quantity.

Back pay

CRSC can be paid retroactively. DFAS audits the account, and the retroactive date may go back as far as June 1, 2003, limited by the CRSC start date your branch awards and your retirement law. Disability retirees with fewer than 20 years of service are limited to January 1, 2008. CRDP, by contrast, is not payable before January 1, 2004.

CRDP or CRSC: you get one, not both

You can qualify for both, but you can receive only one. In the first year you are eligible for both, DFAS automatically applies whichever pays you more, based on the gross amount of each, and sends an election form; you have 45 days to switch if you want the other one. After that, the choice is yours to make each year during the CRDP/CRSC open season, which usually takes place in January.

The differences that matter most, from DFAS's comparison chart:

The tax line is often the deciding one. Because CRSC is not taxable and CRDP is, a CRSC payment can leave you with more after tax even when the gross amounts are close. Run both sets of numbers before open season.

Chapter 61 disability retirees

If you were retired for disability under Chapter 61, CRDP has extra conditions. You must have completed 20 or more years of creditable service at the time of retirement, and the 50% VA rating requirement still applies. A Chapter 61 retiree without 20 years is not eligible for CRDP, though CRSC remains possible if the disability is combat related.

Even with 20 years, the amount can be limited. A disability retiree must still waive the part of military disability retired pay that exceeds what they would have received had they retired for years of service. In DFAS's example, a Chapter 61 retiree with more than 20 years and a 50% VA rating can receive concurrently only what a longevity retirement would have paid; the rest is still subject to the waiver.

For how disability retired pay itself is calculated, including the 30% rating threshold for retirement with fewer than 20 years and the 75% cap on the multiplier, see the guide to how military retired pay is calculated.

When your VA rating changes

Any new rating or change to your VA compensation can require DFAS to adjust your retired pay and your CRDP or CRSC account. If the VA's change applies to earlier months or years, those earlier periods are adjusted too. These retroactive adjustments involve both agencies and can take time. Occasionally they produce a debt: DFAS says that of the more than 15,000 benefit changes it receives from the VA each month on average, fewer than 2% result in one. If that happens, DFAS sends a letter with repayment options, including paying in full, an installment plan or deductions from your CRDP or CRSC pay. Interest is added to any unpaid part starting 30 days after the notice, and debts delinquent for more than 120 days go to the Department of the Treasury for collection, so answer the letter promptly. Keep your VA award letters and DFAS statements together.

Other things that come out of the payment

• Survivor Benefit Plan premiums. Since the premiums due in April 2018, DFAS deducts SBP premiums from CRSC when retired pay is not enough to cover them. See the SBP calculator for what the premium is.
• Debts and garnishment. DFAS's chart marks both CRSC and CRDP as subject to collection and garnishment.
• State taxes. CRDP is retired pay, so your state's rule for military retired pay applies to it; see which states tax military retirement pay.

A checklist

1. Once the VA awards compensation, check your DFAS retiree account statement for the VA waiver.
2. If your rating is 50% or more and you retired for years of service, expect CRDP automatically; call DFAS if it does not appear.
3. If any rated disability is combat related, apply for CRSC to your branch with DD Form 2860, whatever your rating from 10% up.
4. If you qualify for both, compare the after-tax amounts, and decide during each January open season.
5. Reapply for CRSC when the VA adds disabilities that may be combat related.
6. Keep VA and DFAS paperwork together; retroactive changes touch both.

DFAS notes that its pages explain typical situations and that the laws, financial management regulations and instructions govern the details. For your own case, DFAS's retiree line is 800-321-1080, and your branch handles CRSC.