Since 2004, federal law has let military retirees rated 50 percent or higher by VA keep both their full retired pay and their VA disability compensation, yet two groups still lose money every month to a dollar-for-dollar offset in 2026: retirees rated 40 percent or lower, and medical (Chapter 61) retirees with fewer than 20 years of service, according to the Congressional Research Service. The pain point is obvious. A retiree earns two separate benefits, then watches one shrink the other on the pay statement. This guide explains how the VA waiver works, who escapes it through CRDP or CRSC, how the May 2026 Department of Defense guidance changed CRSC back pay, and what a retiree should do, in order, to keep as much of both payments as the law allows.
Key Takeaways
- Understand the offset first: 38 U.S.C. 5304 and 5305 require a retiree to waive retired pay dollar-for-dollar to receive VA compensation, unless CRDP or CRSC applies.
- Check the 50 percent line: CRDP restores full retired pay automatically for 20-year retirees with a VA rating of 50 percent or higher; no application is required or accepted.
- Apply for CRSC with DD Form 2860 through the branch of service if any rated condition is combat-related; CRSC has no minimum rating and is tax-free.
- Compare both programs every January during the DFAS open season, because a retiree can hold only one, and the better choice can change as ratings or tax situations change.
- Review any CRSC award issued after August 20, 2025, because the May 14, 2026 DoD memorandum rescinded the application-date rule and restored entitlement-based effective dates.
- Track the Major Richard Star Act (H.R. 2102 / S. 1032), which would extend concurrent receipt to roughly 52,304 combat-related Chapter 61 retirees but has not passed as of 2026.
Table of Contents
- How the VA Waiver of Retired Pay Works
- CRDP: Who Gets Full Concurrent Receipt Automatically
- CRSC: The Combat-Related Path With No Minimum Rating
- Step-by-Step: Protecting Both Payments
- After the Election: Open Season, Audits, and Appeals
- Frequently Asked Questions
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How the VA Waiver of Retired Pay Works
The frustration starts with a rule written long before most of today's retirees enlisted. Under 38 U.S.C. 5304 and 5305, a person cannot receive military retired pay and VA disability compensation for the same period without waiving retired pay in the amount of the VA payment. The Congressional Research Service describes this plainly: before 2004, a retiree with a VA rating "would incur a retired pay offset (i.e., dollar-for-dollar reduction) by the amount of their VA compensation." The retiree still received the same total dollars, but part of the money simply changed its source from the Defense Finance and Accounting Service to VA.
Why would anyone accept that trade? Because VA compensation is not taxed, while retired pay generally is. Waiving taxable retired pay to receive the same amount tax-free usually produces a net gain even when no concurrent-receipt program applies. Using the 2026 VA rate table, which rose 2.8 percent with the cost-of-living adjustment, a single veteran at 10 percent receives $180.42 per month and a single veteran at 100 percent receives $3,938.58. Every dollar of that amount reduces retired pay unless CRDP or CRSC steps in.
The FY2003 and FY2004 National Defense Authorization Acts created the two exceptions that now govern the whole subject. Combat-Related Special Compensation (CRSC, 10 U.S.C. 1413a) arrived first. Concurrent Retirement and Disability Payments (CRDP, 10 U.S.C. 1414) followed, phased in over ten years from 2004 to 2013. The two programs are different in kind. CRDP is classified as restored retired pay and is taxable. CRSC is classified as special compensation and is not taxable. A retiree who qualifies for both must pick one.
Who still loses money to the offset in 2026
CRS identifies two groups that remain outside CRDP. The first is non-disability retirees whose service-connected conditions are rated 40 percent or lower and are not combat-related. The second is Chapter 61 disability retirees with fewer than 20 years of service. For these retirees, the only relief is CRSC, and only if a condition meets the combat-related definition. A retiree who fits neither exception still receives the full VA amount but sees retired pay reduced by the same figure. Reading the Retiree Account Statement from DFAS is the fastest way to see whether an offset is being applied and how large it is.
CRDP: Who Gets Full Concurrent Receipt Automatically
Many retirees leave money on the table because they assume every benefit requires a form. CRDP does not. As CRS explains, CRDP "authorizes military retirees with at least a 50% service-connected disability as rated by VA to receive full military retired pay and VA disability compensation without offset." DFAS determines eligibility on its own from VA rating data and the retiree's service record. Applications are neither required nor accepted. When a rating crosses from 40 to 50 percent, DFAS should restore the waived retired pay without any request.
The eligibility test has three parts. The retiree must be entitled to retired pay, must have a VA combined rating of 50 percent or higher, and must have retired with 20 or more years of service or under a reserve retirement that counts as a 20-year retirement. Temporary Early Retirement Authority (TERA) retirees are covered under the CRS flowchart. Chapter 61 retirees are covered only if they also have 20 or more years of service; in that case CRDP is limited to the longevity portion of retired pay.
The one statistic that matters most here is the rating line itself. A 40 percent combined rating produces zero CRDP. A 50 percent combined rating produces full restoration. Because VA combined ratings are calculated with the whole-person formula rather than simple addition, two conditions rated 30 and 20 percent combine to 44, which rounds to 40 and does not qualify. Adding one more 10 percent condition moves the total to 50. That arithmetic is why rating increases and secondary-condition claims carry unusual weight for military retirees.
The "restored pay" label and what it means for taxes
Because CRDP is restored retired pay, it is taxed like retired pay and it is divisible under a state court order in the same way retired pay is. Those two features are the main reasons a retiree with a combat-related condition sometimes chooses CRSC instead, even when the CRDP dollar figure looks larger on the DFAS election letter. The letter DFAS mails every December shows both amounts side by side, and the tax note printed on it is the place to start when comparing them.
CRSC: The Combat-Related Path With No Minimum Rating
A retiree rated 30 percent for a condition caused by an IED blast may feel stuck. CRDP is out of reach below 50 percent. CRSC exists for exactly that situation. Under 10 U.S.C. 1413a, CRSC reimburses the retiree for some or all of the retired pay offset when the disability is combat-related. The retired pay waiver still happens on paper, but a separate tax-free CRSC payment replaces the lost amount up to the size of the offset.
CRS lists the two ways a condition qualifies. Either the disability is attributable to an injury for which the member was awarded the Purple Heart and is rated at least 10 percent by VA, or the disability resulted from "armed conflict," "hazardous service," "duty simulating war," or "an instrumentality of war." The parent service, not VA, decides whether each condition meets one of those tests. That is why CRSC requires an application: DD Form 2860, submitted to the Army, Navy, Marine Corps, Air Force, Space Force, or Coast Guard board that handles it.
The dollar math is the hardest part of the whole subject. CRS suggests thinking of it as three payments: retired pay minus the VA offset, the VA payment itself, and the CRSC payment based on the combat-related portion of the rating. CRSC cannot exceed the actual retired pay reduction. For Chapter 61 retirees, a special rule caps CRSC at the amount the retiree would have earned on longevity alone, which in some cases reduces the CRSC payment to zero even though the award letter says "approved."
The May 14, 2026 effective-date reversal
On June 12, 2025, the Supreme Court ruled unanimously in Soto v. United States that the Barring Act's six-year limit does not apply to CRSC. DoD's August 20, 2025 interim guidance removed the six-year cap but set the effective date for new determinations at the date the completed application was received. A January 30, 2026 memo softened that rule. Then on May 14, 2026, DoD rescinded both memos and adopted one rule for "all CRSC claims, regardless of date filed": the effective date is the first date the retiree was eligible for retired pay, was receiving VA compensation with a retired-pay waiver, and met a combat-related criterion. Statutory floors still apply: no earlier than June 1, 2003 for most 20-year retirees, January 1, 2004 for certain non-regular retirees, and January 1, 2008 for disability retirees.
What the reversal means for prior awards
The May 2026 memo directs each service to review affected awards, correct effective dates, and send revised determinations to DFAS for retroactive payment. A retiree who received a CRSC decision after August 20, 2025, or whose earlier award was cut off at six years, should compare the effective date on the decision letter against the three-part test above. If the dates do not match, a written request to the service's CRSC board for a corrected effective date is the next step.
Step-by-Step: Protecting Both Payments
Retirees often approach this backward, calling DFAS before the VA rating is settled. The sequence below follows the order the money actually flows. VA is now completing claims in an average of 78.6 days as of the end of May 2026, down from 141.5 days in January 2025, so the VA side of the process moves faster than it did even a year ago.
- File or update the VA claim first. Submit an Intent to File to lock the effective date, then file VA Form 21-526EZ for every service-connected condition, including secondaries. The VA combined rating drives both CRDP eligibility and the size of any CRSC payment, so the rating must be right before anything else can be.
- Pull the DFAS Retiree Account Statement. Log in to myPay and read the "VA Waiver" line. That figure is the monthly offset. Confirm it matches the VA award amount for the same month; mismatches usually mean VA and DFAS data have not synced.
- Determine which program applies. At 50 percent or higher with 20 years, CRDP is automatic. If any condition is combat-related, complete DD Form 2860, attach the VA rating decision, the DD-214, and evidence tying each condition to combat, hazardous service, or an instrumentality of war, and send it to the parent service's CRSC office.
- Verify the first corrected pay statement. Once CRDP or CRSC starts, the next statement should show either restored retired pay or a separate CRSC line. Check the retroactive amount against the effective date rules described above.
- Calendar the January open season. If eligible for both, DFAS will mail an election letter in December. Compare after-tax totals and any court-order implications, then return the form only if switching. Responses must be postmarked by January 31.
Evidence that proves a condition is combat-related
The CRSC board needs documentation that shows how the injury happened, not just that it exists. Line-of-duty determinations, casualty reports, Purple Heart orders, deployment orders that place the member in an armed-conflict zone, aviation or parachute incident reports for hazardous service, and vehicle or weapons accident reports for instrumentality-of-war claims all carry weight. Lay statements from unit members who witnessed the event fill gaps when official records are thin.
Reading the VA rating decision for CRSC purposes
Each condition on the VA rating decision receives its own percentage. The CRSC board reviews condition by condition, so a retiree should list every rated condition on DD Form 2860 and mark the combat-related ones. A 70 percent combined VA rating with only one 30 percent combat-related condition produces a CRSC rating of 30 percent, and the payment is based on that figure. Understanding this split prevents disappointment when the award arrives.
After the Election: Open Season, Audits, and Appeals
The work does not end when the first corrected payment lands. Retirees who stop paying attention after the initial fix are the ones most likely to miss a better election later. Per DFAS, the 2026 open season ran January 1 through 31, and the same window is expected each year. A retiree who does nothing keeps the current election; a form postmarked after January 31 is not processed until the following year, even if one entitlement changes in the meantime.
Three events should trigger a fresh review. First, any VA rating change, because a new percentage can shift CRDP eligibility or the CRSC payment. Second, any change in tax situation, because CRDP is taxable and CRSC is not. Third, any DoD or court decision affecting effective dates, as the May 2026 memo did. Each of these can turn last year's correct election into this year's costly one.
Challenging a CRSC denial or effective date
A CRSC denial from the parent service can be reconsidered by that service's board with new evidence, and the effective date can be corrected under the May 14, 2026 guidance. If reconsideration fails, the Board for Correction of Military Records for that branch (DD Form 149) is the next level. VA is not involved in CRSC decisions, so filing a VA Supplemental Claim or Higher-Level Review does not fix a CRSC problem; those tools are for the VA rating itself.
Watching the Major Richard Star Act
The largest remaining gap belongs to combat-injured Chapter 61 retirees with fewer than 20 years. CRS estimates the Major Richard Star Act would authorize concurrent receipt for approximately 52,304 of them. The bill (H.R. 2102 / S. 1032 in the 119th Congress) has broad cosponsor support, but a Senate provision was dropped from the final FY2026 NDAA, and unanimous-consent requests were blocked on October 8, 2025 and March 3, 2026. As of 2026 it has not become law. Retirees in this group should keep their VA rating current and their CRSC application on file so that any future change applies immediately.
Ready to Check Your Claim?
The offset only shrinks when the VA rating is complete, accurate, and documented condition by condition. Before calling DFAS or mailing DD Form 2860, take the Free VA Claim Readiness Test at avoyvet.com. In a few minutes it shows which conditions are missing evidence, whether a rating increase or secondary claim could move a combined rating across the 50 percent line, and what to gather next. Then ask AVOY Veteran Navigator AI™ any follow-up question about CRDP, CRSC, or the retired-pay waiver.
Frequently Asked Questions
Does a retiree lose money by filing a VA claim?
Not in total dollars, and usually the opposite. Under the waiver rule, retired pay drops by the VA amount, but the VA amount is tax-free while retired pay is taxable, so the same gross figure produces more take-home pay. At 50 percent or higher with 20 years of service, CRDP restores the retired pay and the retiree keeps both in full. With a combat-related condition, CRSC replaces the offset tax-free at any rating. The only retirees who see no gain beyond the tax advantage are those rated 40 percent or lower with no combat-related condition, and even they come out ahead after taxes. Filing the VA claim is the first move in every scenario.
Why did retired pay drop after a VA rating was granted?
Because 38 U.S.C. 5305 requires the waiver. DFAS reduces retired pay by the VA compensation amount for the same month, and VA pays that amount directly. The Retiree Account Statement shows the reduction on the "VA Waiver" line. If the rating is 50 percent or higher and the retiree has 20 years, DFAS should automatically add CRDP back within a pay cycle or two of receiving the VA data. If the reduction remains after 60 days, the fix is a call to DFAS at 800-321-1080 with the VA rating decision in hand, not a new VA claim.
Is there an application for CRDP?
No. CRS and DFAS both state that CRDP is automatic and that applications are neither required nor accepted. DFAS receives rating data from VA and computes CRDP on its own. The retiree's job is to make sure the VA rating is correct and that DFAS has current contact and direct-deposit information. Retirees sometimes confuse CRDP with CRSC, which does require DD Form 2860 through the branch of service. If a retiree meets the 50 percent and 20-year tests and the pay statement still shows a full offset, the issue is a data sync problem to raise with DFAS, not a missing form.
Can a retiree receive both CRDP and CRSC?
No. An eligible retiree may receive one or the other, never both at once. DFAS mails an election letter each December showing the projected amount under each program and noting that CRDP is taxable while CRSC is not. The retiree may switch once a year during the January open season by returning the form postmarked by January 31. Choosing the higher gross number is not always right; a smaller tax-free CRSC payment can exceed a larger taxable CRDP payment after taxes, and CRSC is also treated differently under divorce court orders. Running both figures through the retiree's actual tax bracket is the only reliable comparison.
What changed for CRSC back pay in 2026?
Two things. First, the Supreme Court's June 2025 decision in Soto v. United States removed the six-year Barring Act cap on retroactive CRSC. Second, on May 14, 2026, DoD rescinded its August 2025 and January 2026 guidance and adopted one rule for all CRSC claims: the effective date is the first date the retiree was eligible for retired pay, was receiving VA compensation with a waiver, and met a combat-related criterion. Statutory start dates still apply, so back pay cannot reach earlier than June 1, 2003, January 1, 2004, or January 1, 2008 depending on the retirement type. Retirees with awards issued after August 20, 2025 should confirm their effective date matches the new rule.
Does a Chapter 61 medical retiree with 12 years qualify for anything?
CRDP, no. CRS confirms Chapter 61 retirees with fewer than 20 years are excluded. CRSC, possibly. If any rated condition is combat-related, DD Form 2860 can be filed. The special rule for Chapter 61 retirees caps CRSC at the longevity portion of retired pay, so a retiree whose disability retired pay is much larger than a 12-year longevity calculation may receive little or no CRSC even with an approved award. The Major Richard Star Act would remove that cap for combat-related Chapter 61 retirees, but it has not passed as of 2026. Filing the CRSC application anyway keeps the retiree positioned if the law changes.
Which conditions count as combat-related for CRSC?
The parent service applies the four statutory categories plus the Purple Heart rule. A condition qualifies if it is tied to a Purple Heart injury rated at least 10 percent, or if it resulted from armed conflict, hazardous service, duty simulating war, or an instrumentality of war. Examples the services have accepted include PTSD from direct combat, hearing loss from weapons fire in training exercises that simulate war, injuries from parachute or flight operations, and injuries caused by military vehicles or equipment. Conditions from ordinary physical training, sports, or off-duty accidents generally do not qualify. Each condition is judged separately, so the evidence should explain the specific event behind each one.
Educational information only — not legal, medical, or claim representation, and not affiliated with the U.S. Department of Veterans Affairs. For help filing or appealing, contact a VA-accredited VSO (often free), claims agent, or attorney. For current rates, forms, and deadlines, see VA.gov.
