M21-1 Manual / Part VI, Subpart ii, Chapter 2
Recoupment of Separation Benefits
M21-1, Part VI, Subpart ii, Chapter 2
Overview
In This Section | This section contains the following topics:
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1. General Information About Separation Benefits
Introduction | This topic contains general information about separation benefits, including
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Change Date | September 22, 2025 |
VI.ii.2.1.b. Determining Whether a Veteran Received Separation Benefits | A review of one or more of the following will typically reveal whether or not a Veteran received separation benefits:
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VI.ii.2.1.c. How VA Updates Its Systems of Record With a Veteran’s Service Information | DOW transmits service information electronically to VA after a service department discharges a service member from active duty. The systems referenced in M21-1, Part VI, Subpart ii, 2.1.b, are updated with relevant discharge information. Exception: If a Veteran received a type of separation benefit that VA is not responsible for recouping, the amount of this benefit is not captured.Reference: For more information on the electronic transfer of military service information from DOW to VA, see M21-1, Part III, Subpart i, 1.B.3. |
VI.ii.2.1.d. Determining Whether VA Has Already Recouped Separation Benefits a Veteran Received | Before establishing a withholding to recoup a Veteran’s separation benefit, check the corporate record (by clicking on the MILITARY button in Share and selecting the MILITARY PAYMENTS tab) to ensure VA has not already completed recoupment. If the corporate record shows recoupment is complete, claims processors must ensure the amount of benefits VA recouped matches the amount of the separation benefit the Veteran received. If they do not match, treat the separation benefit currently at issue as unrecouped. Exception: If VA completed its recoupment of a Veteran’s separation benefit in the Benefits Delivery Network (BDN) (prior to conversion to VETSNET), such recoupment will not be evident in Share. If a Veteran had a master record in BDN, claims processors may view data from the record by clicking on the PRECONVSN MASTER RCD button in Share. Claims processors may not rely on data displayed on the STATUS (M11) screen, however, to determine whether VA finished recouping a Veteran’s separation benefit. Instead, claims processors must review entries in the Offset – Recoupment section of BDN award prints in the claims folder to make this determination. Notes:
Important: If a determination cannot be made as to whether VA has recouped a separation benefit, ask the local finance activity to assist in making the determination by performing a financial audit. References: For more information on using
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VI.ii.2.1.e. Readjustment Pay Under Former 10 U.S.C. 3814a | Readjustment pay under former 10 U.S.C. 3814a was paid to regular officers below the rank of major who were discharged during a reduction in force. The authority for making these payments expired at the end of 1977. If a Veteran received readjustment pay under former 10 U.S.C. 3814a, the date of entitlement to VA compensation dictates whether recoupment is required. References: For more information on
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VI.ii.2.1.f. Readjustment Pay Under Former 10 U.S.C. 687 | Readjustment pay under former 10 U.S.C. 687 was paid to reserve officers who were involuntarily released after completing at least five years of active service but did not qualify for retirement. The authority for making these payments was repealed effective September 15, 1981. If a Veteran was involuntarily released from active duty as a reservist on or after July 9, 1956, and had completed continuous active duty of at least five but not more than 18 years, carefully review the records described in M21-1, Part VI, Subpart ii, 2.1.b to determine whether the Veteran elected
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VI.ii.2.1.g. Effect of PL 87-509 on Readjustment Pay | PL 87-509, enacted June 28, 1962, liberalized the former law that required Veterans to make a one-time, irrevocable election between VA compensation and readjustment pay. The prior election no longer precludes payment of compensation if a Veteran is otherwise eligible. On or after June 28, 1962, if
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VI.ii.2.1.h. Non-Disability Severance Pay | DOW awarded non-disability severance pay to certain individuals, under former 10 U.S.C 359, 360, 859, and 860, who involuntarily separated from service, usually due to their failure to meet standards of performance. This benefit is subject to recoupment unless the Veteran established entitlement to VA compensation before September 15, 1981. Note: PL 96-513 repealed former 10 U.S.C. 359, 360, 859, and 860, effective September 15, 1981. Reference: For more information on the recoupment of non-disability severance pay, see
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VI.ii.2.1.j. RISP and RSSP | PL 102-484, Section 4418, provided for the payment of RISP to certain reservists who are involuntarily released from the Selected Reserve. PL 102-484, Section 4416, provided for the payment of RSSP to reservists with at least 20 years of service who are not yet old enough to retire. Payments are made annually for up to five years or until the reservist turns sixty. In VAOPGCPREC 9-1996, VA’s General Counsel held that VA is
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VI.ii.2.1.k. SSB and VSI | PL 102-190, Sections 661 and 662, enacted December 5, 1991, added SSB under 10 U.S.C. 1174a and VSI under 10 U.S.C. 1175 as separation benefits to facilitate the downsizing of the armed forces. Service departments used these two exit-bonus incentive programs through December 31, 2001, to encourage service members, who might otherwise face involuntary separation or denial of reenlistment, to separate voluntarily. To qualify for SSB or VSI, a service member must have
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VI.ii.2.1.l. Differences Between SSB and VSI | One of the primary differences between VSI and SSB is the manner in which DOW pays each benefit. The most important difference, however, is that VA is not responsible for recouping VSI from a Veteran’s disability compensation. The table below describes how DOW pays SSB and VSI.
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VI.ii.2.1.m. DOW’s Responsibility for Adjusting VSI | When a Veteran who elected to receive VSI subsequently establishes entitlement to VA compensation based on the same period of service, DOW reduces VSI to offset the amount of VA compensation. DOW does not make deductions for VA compensation that are based on an earlier period of service than that for which VSI is payable. Important: VA takes no special actions, such as notifying DOW, when it awards compensation to a Veteran who receives VSI. Note: DFAS, located in Cleveland, Ohio,
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VI.ii.2.1.n. Indicators on DD Form 214 of a Veteran’s Receipt of SSB or VSI | Where applicable, a Veteran’s DD Form 214 usually contains information that indicates receipt of SSB or VSI and its respective amount. The table below shows where this information is located on the form and how it might appear.
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VI.ii.2.1.p. Indicators on DD Form 214 of a Veteran’s Receipt of VSP | Where applicable, a Veteran’s DD Form 214 usually contains information that indicates receipt of VSP and its amount. The table below shows where this information is located on the form and how it might appear.
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VI.ii.2.1.q. VRI | VRI is a payment DOW offers to encourage voluntary retirement by officers who have served for more than 20 years. VRI is not subject to recoupment from VA benefits. Reference: For more information on VRI, see 10 U.S.C. 638b. |
2. Determining the Amount to Recoup and Withhold From Monthly Payments
Introduction | This topic contains instructions for determining the amount of separation benefits to recoup and the amount to withhold from monthly compensation payments, including
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Change Date | March 9, 2026 |
VI.ii.2.2.a. General Information About Recouping Separation Benefits | After VA determines recoupment of separation benefits is necessary and the amount that is subject to recoupment, it must withhold some or all of the Veteran’s monthly compensation until recoupment is complete. Except as noted in M21-1, Part VI, Subpart ii, 2.2.k, and M21-1, Part VI, Subpart ii, 2.3.g, the amount VA withholds each month includes any of the following to which the Veteran is entitled:
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VI.ii.2.2.b. Confirming the Amount of the Separation Benefit | The records described in M21-1, Part VI, Subpart ii, 2.1.b typically show the amount of the separation benefit a Veteran received. Because this amount is not always accurate, however, regional offices (ROs) must confirm the amount by following the instructions in the table below.
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VI.ii.2.2.c. Conditions Under Which Claims Processors May Not Use AskDFAS to Obtain Confirmation of the Amount of a Veteran’s Separation Benefit | Because certain records that DFAS requires to confirm the amount of a Veteran’s separation benefit are no longer accessible, there are conditions under which the submission of a request for said confirmation through AskDFAS will always result in a negative reply. The table below describes those conditions and the actions claims processors must take instead of attempting to obtain confirmation through AskDFAS.
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VI.ii.2.2.d. Determining Whether and How Much to Recoup | The following factors determine whether and how much of a Veteran’s separation benefits VA must recoup from disability compensation:
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VI.ii.2.2.e. Exceptions to Policies for Recouping Separation Benefits | The table below contains exceptions to the policies described in M21-1, Part VI, Subpart ii, 2.2.d regarding the recoupment of separation benefits.
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VI.ii.2.2.f. Service Departments’ Practice of Withholding Federal Income Tax | Service departments always withhold Federal income tax from RISP, VSP, SSB, and separation pay under 10 U.S.C. 1174. Often, however, DOW’s database does not contain the amount of Federal income tax service departments withheld from these types of separation benefits. In these cases, VIS will show $0.00 as the Federal income tax withholding. Follow the instructions in M21-1, Part VI, Subpart ii, 2.2.g, in the situation described in the preceding paragraph or anytime VA has verified the gross amount of a Veteran’s separation benefit but has not yet verified the amount of Federal income tax the service department withheld. Important: If the separation benefit a Veteran received is disability severance pay, and VIS shows $0.00 as the Federal income tax withholding, the Veteran’s service department
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VI.ii.2.2.g. Calculating the After-Tax Amount of Separation Benefits | To calculate the after-tax amount of a Veteran’s separation benefit,
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VI.ii.2.2.h. Handling Separation Benefits When Compensation Becomes Greater Than Pension | Follow the instructions in the table below when all four of the following conditions exist:
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VI.ii.2.2.i. Recouping Separation Benefits After a Veteran Becomes Entitled to MRP | If a Veteran becomes entitled to MRP after receiving separation benefits, the retired pay center (RPC) must recoup the gross amount of separation benefits it paid to the Veteran from MRP. If these same separation benefits are subject to recoupment by VA because of the Veteran’s entitlement to disability compensation, VA and the RPC become mutually responsible for their recoupment. Exceptions:
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VI.ii.2.2.j. Adjusting the Amount of Compensation VA Is Withholding | The rules for withholding VA compensation to recoup separation benefits have changed over time. If the recoupment of separation benefits was correctly initiated under former rules, do not adjust a Veteran’s award for the sole purpose of bringing it into compliance with current rules, unless the Veteran (or representative) specifically requests it. Should the need arise to adjust the amount of compensation VA is withholding for the reason described above, make the adjustment prospectively, effective the date in the LAST PAID DATE field on the CURRENT AND HISTORICAL AWARD INFORMATION page in VBMS. |
VI.ii.2.2.k. Recouping Separation Benefits (Other Than Disability Severance Pay) From a Veteran With Multiple Periods of Service | Important: The information in this block applies to the recoupment of all types of separation benefits except disability severance pay. Separation benefits are not paid for a particular period of service. Rather, the payment is for all periods of service that preceded the separation for which a separation benefit was paid.
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3. Instructions Unique to the Recoupment of Disability Severance Pay
Introduction | This topic contains instructions that are unique to the recoupment of disability severance pay, including
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Change Date | September 22, 2025 |
VI.ii.2.3.a. Identifying | Before recouping disability severance pay, it is necessary to identify the disability(ies) for which the Veteran received this benefit. The best source for this information is the Veteran’s Physical Evaluation Board (PEB) report, which is normally included in service treatment records (STRs). If the PEB report is not included in the Veteran’s STRs, it might be located in service personnel records. Use the table below to determine how to submit a request for the PEB report.
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VI.ii.2.3.b. General Policies Regarding Withholdings to Recoup Disability Severance Pay | Generally, if a Veteran received disability severance pay, VA must withhold from monthly compensation an amount equal to the monthly compensation payable for the disability(ies) for which the Veteran received disability severance pay. VA continues to withhold this amount until it has recouped the amount specified in M21-1, Part VI, Subpart ii, 2.2.d. Important:
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VI.ii.2.3.c. Definition: Initial, Compensable Disability Rating | For the purpose of this section, initial, compensable disability rating means the first disability rating VA assigns to a disability that is 10 percent or higher, except 100-percent ratings under 38 CFR 4.28, 4.29, or 4.30. If VA assigns a compensable disability rating for the first time, and subsequently increases the rating effective the same date it assigned the first one, the very first rating VA assigned is still considered the “initial, compensable disability rating” for the purpose of this section. Example: VA assigned a Veteran’s SC back disorder a 10-percent disability rating, effective April 21, 2021. The Veteran filed a higher-level review of the decision, and VA later increased the rating to 20 percent, effective the same date it had assigned the 10-percent rating. Result: The initial, compensable disability rating in this example is 10 percent. Exception: If VA increases an initial, compensable disability rating from the same effective date based on clear and unmistakable error (CUE), the new rating replaces the first one and becomes the initial, compensable disability rating. When adjusting the withholding in these cases, make the adjustment prospectively, effective the date in the LAST PAID DATE field on the CURRENT AND HISTORICAL AWARD INFORMATION page in VBMS. References: For more information on
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VI.ii.2.3.d. Handling Reduced Disability Ratings and Disability Severance Pay | If VA reduces the disability rating it initially assigned to a severance-pay disability, it must make a corresponding adjustment in the amount of compensation it withholds each month (to recoup disability severance pay) to reflect the new rating. Important: The new rating does not become the initial disability rating (as defined in M21-1, Part VI, Subpart ii, 2.3.c), unless VA determines the initial rating was clearly and unmistakably erroneous. Example:
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VI.ii.2.3.e. Disability Severance Pay for Disabilities Incurred in a Combat Zone or During Combat-Related Operations | PL 110-181, as implemented in 38 CFR 3.700(a)(3), prohibits the recoupment of disability severance pay from VA compensation if the Veteran
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VI.ii.2.3.f. Determining Whether a Disability Was Incurred in a Combat Zone or During Combat-Related Operations | Each of the following represents an indicator that a Veteran incurred a disability in the line of duty in a combat zone or during combat-related operations. Disability severance pay the Veteran received for such a disability is not subject to recoupment.
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VI.ii.2.3.g. Withholding Compensation When the Veteran Did Not Receive Severance Pay for All SC Disabilities | If VA has awarded SC for both severance- and non-severance-pay disabilities, VA may not withhold an amount greater than that to which the Veteran is entitled based on the non-severance-pay disability(ies). This includes the additional amount of compensation payable for
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VI.ii.2.3.h. Example: VA Assigns a 100-Percent Disability Rating to a Non-Severance-Pay Disability | Scenario: In a decision on a Veteran’s original claim for benefits, VA awards SC for
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VI.ii.2.3.i. Withholding an Amount That Is Most Advantageous to the Veteran | When calculating the monthly amount of VA compensation to withhold from a Veteran with both severance and non-severance-pay disabilities, always use the withholding that pays the Veteran the higher rate of compensation. Example: VA assigns a combined disability rating of 70 percent to a married Veteran based on a
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VI.ii.2.3.j. Changes in the Disability Ratings of Multiple Severance-Pay Disabilities | If the disability ratings assigned to two or more severance-pay disabilities change, compare the combined disability rating VA initially assigned to the severance-pay disabilities with the current combined disability rating. If the initial, combined disability rating is less than or equal to the current combined disability rating for the same disabilities, withhold compensation at the rate payable for the initial combined disability rating rather than considering the changes in the ratings assigned to each individual disability. The table below contains two examples of situations in which VA would withhold compensation at the rate payable for the initial, combined disability rating of 40 percent.
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4. Recouping VSP Awarded to Air Force, Navy, and Marine Corps Veterans
Introduction | This topic contains information about recouping VSP awarded to Air Force Veterans, including
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Change Date | April 11, 2024 |
VI.ii.2.4.a. History Behind the Current Air Force Recoupment Schedule for VSP | On October 17, 2007, the Secretary of the Air Force issued a blanket waiver of the requirement to recoup VSP from VA compensation for service members released from active duty on or after that date. Six months later, on April 30, 2008, the Department of the Air Force replaced the blanket waiver with a recoupment schedule for service members released from active duty on or after the latter date. Follow the instructions in the table below upon receipt of a claim for VA compensation from an Air Force Veteran who received VSP.
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VI.ii.2.4.b. History Behind the Current Navy and Marine Corps Recoupment Schedule for VSP | On November 2, 2023, the Assistant Secretary of the Navy (Manpower and Reserve Affairs) issued a memorandum informing VA that recoupment of VSP from Veterans of the Navy and Marine Corps shall be made in accordance to a schedule that mirrors the schedule established for Veterans of the Air Force. However, the recoupment schedule is for Veteran’s initially awarded disability compensation effective on or after November 2, 2023.Follow the instructions in the table below upon receipt of a claim for VA compensation from a Navy or Marine Corps Veteran who received VSP.
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VI.ii.2.4.c. Instructions for Preparing an Award That Recoups VSP | Follow the instructions in the VBMS Awards User Guide for preparing an award that recoups separation benefits if a Veteran received VSP from the
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VI.ii.2.4.d. Recoupment of VSP From an Incarcerated Air Force, Navy, or Marine Corps Veteran’s Compensation | If VA is recouping an Air Force, Navy, or Marine Corps Veteran’s VSP from disability compensation, using the recoupment schedule in either M21-1, Part VI, Subpart ii, 2.4.a or b (as applicable), and that Veteran’s disability compensation becomes subject to reduction due to incarceration,
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5. Taking Award Action to Withhold Compensation
Introduction | This topic contains information on taking award action to withhold compensation, including
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Change Date | January 2, 2019 |
VI.ii.2.5.a. Determining the Appropriate Effective Date for Commencing the Recoupment of Separation Benefits | Use the table below to determine the appropriate effective date for commencing the recoupment of separation benefits from a Veteran’s disability compensation.
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VI.ii.2.5.b. Instructions for Preparing an Award That Withholds Compensation to Recoup Separation Benefits | Follow the instructions in the VBMS Awards User Guide to prepare an award that withholds compensation to recoup separation benefits. |
VI.ii.2.5.c. Preparing a Decision Notice After Commencing the Recoupment of Separation Benefits | After taking award action to begin recouping a Veteran’s separation benefits, prepare a decision notice that informs the Veteran
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6. Adjusting an Award From Which VA Withheld or Is Withholding Compensation
Introduction | This topic contains information on adjusting an award from which VA is withholding compensation, including
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Change Date | March 25, 2013 |
VI.ii.2.6.a. Retroactive Adjustments That Require Special Handling | Follow the instructions in the user guide titled How to Identify an Out-of-System Payment and Adjust Priors for an Audit Error Worksheet (AEW) if
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VI.ii.2.6.b. Adjusting an Award Based on a Reduction in the Combined Disability Rating | If, while VA is withholding all of a Veteran’s compensation to recoup separation benefits, VA decides a decrease in the Veteran’s combined disability rating is in order, the provisions of 38 CFR 3.105(e) still apply.Even though the Veteran is not receiving compensation, VA must
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VI.ii.2.6.c. Status of a Recoupment Balance When VA Stops Paying Compensation | When VA stops paying a Veteran compensation from which it had been recouping separation benefits, any amount VA has not yet recouped
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7. Processing Requests for Adjustment of a Withholding Because of Extreme Financial Hardship
Introduction | This topic contains information on processing requests for adjustment of a withholding because of extreme financial hardship, including
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Change Date | February 10, 2022 |
VI.ii.2.7.a. Processing Requests for Adjustment of a Withholding Because of Extreme Financial Hardship | The table below contains instructions for processing a request that VA adjust the amount of a withholding (that is or VA has proposed to put in place to recoup separation benefits) because of extreme financial hardship.Notes:
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VI.ii.2.7.b. Exhibit: Template for Requesting an Advisory Opinion on Adjustment of a Separation Pay Withholding | Below is the template that must be used when requesting Compensation Service provide an advisory opinion on an adjustment to the amount of a separation pay withholding based on extreme financial hardship.
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Source: VA M21-1 Adjudication Procedures Manual, M21-1, Part VI, Subpart ii, Chapter 2 (U.S. government work, reproduced for reference). Browse all sections →