Taxability of Medical Severance Pay

[gunny995]

According to the DoD Financial Management Regulation Volume 7A, Chapter 35 para 350404 A3 View attachment DoD Financial Management Regulation 07a_35.pdf dated November 2009, the disability severance is NOT taxable if the member is subsequently officialy awarded a VA rating for the same disability. With the pilot program, you get the VA "proposed" rating at the same time as the Fitness rating. Can Jason or one of our other legal folks tell me, can this proposed rating be taken to the milpay folks at the time of seperation and request that taxes not be taken out? Also, if the Medical severance pay is not taxable and only the taxable amount can be recuped from the VA disability check, doesn't that mean that none of it is recupable?

 

[Jason Perry]

As for the first question, I think it is worth asking, but if they say no, I think they are within bounds because until you are actually separated, it is just a "proposed" rating. I also think a likely limiting factor is that (as far as I know) there has not been any regulations promulgated to allow for this (my point being that I think they could not tax it at separation if they wanted to, but they would likely require a proper authority to state explicitly that the proposed rating is sufficient to allow this).

As to the second question, without looking at it too closely, I think the answer is no, it is still recoupable...otherwise, all persons with separation pay would not have an offset. (When I say that I did not look at it too closely, a more complete answer would reference the laws and regulations...I am tied up at the moment with numerous matters, so I don't have time to write a response with citations, but I am basing my answer on how this idea of "dual receipt" of separation and VA compensation would violate the general rule prohibiting this).