If you retired from the Armed Forces due to a permanent disability, you are entitled to all rights and privileges of a military retiree, including a military pension, survivor benefit plan participation and disability pay from Veteran Affairs. You may also be eligible to receive both your military permanent medical retirement pay and disability pay from the VA concurrently.
Permanent Medical Retirement
If you were placed on permanent medical retirement, your disability was either rated at 30 percent or greater or you served for 20 or more years. This distinction is important because it impacts your medical retirement pay computation. This is computed using disability percentage or years of active service, whichever is the most beneficial to you. The reason that you were medically retired also impacts whether or not you can receive concurrent VA benefits.
Medical Retirement Pay -- Taxation
If you retire from the military for a disability noted on the Permanent Disability Retirement List, referred to as the PDRL, your military retirement pay is 100 percent nontaxable as long as you meet one of two conditions. You must have a combat-related disability, or you must have been already in the military or drafted on September 24, 1975. If you did not serve in Vietnam or before or your disability arises out of regular, non-combat active duty, then your medical retirement pay is fully taxable.
You can receive disability benefits from the Department of Veteran Affairs if the VA rates you as disabled at 10 percent or higher due to injuries incurred during active duty or training. Disabilities include both physical and mental health conditions. Any compensation you receive from the VA is 100 percent tax-free.
If you are on permanent medical retirement and receive or are eligible to receive VA disability benefits, any VA disability compensation you receive causes a dollar for dollar decrease in your permanent medical retirement pay. Therefore, you can receive the full amount of your permanent military retirement pay or your full veteran's disability compensation, whichever is higher. However, except for certain exemptions, you cannot combine the two. Even with the offset, if your permanent medical retirement pay is taxable, it may still be beneficial to receive VA benefits because your VA benefits will not be taxed.
Overlap -- 50 Percent
As of January 1, 2004, if you are a military retiree with a disability on the PDRL and a 50 percent VA disability rating or higher, you are eligible to receive all of your permanent medical retirement benefits and your VA disability benefits concurrently. Alternatively, you also qualify for the total amount of concurrent benefits if you were awarded a Purple Heart and have a 10 percent VA disability rating or higher.
- Defense Finance and Accounting Service: Qualifying for a Disability Retirement
- Military Compensation: Disability Retirement
- Minnesota State Legislature -- House: Concurrent Receipt of Military Retirement Pay and Veterans Disability Compensation
- U.S. Department of Veteran Affairs: Disability Compensation