Medical Retirement vs VA Disability: Pay, CRDP, and CRSC

Military medical retirement and VA disability compensation are two separate federal benefits with different eligibility rules, different payment formulas, and very different tax treatment. The Department of Defense pays medical retirement to service members it finds unfit for duty with a disability rating of 30% or higher (or with 20+ years of service). The Department of Veterans Affairs pays tax-free disability compensation to any veteran with a service-connected condition, whether or not it ended their career. You can qualify for both, but federal law generally offsets one against the other unless you fit a specific exception.

Two Payers, Two Purposes

The DoD compensates you for the loss of a military career. The VA compensates you for the loss of civilian earning capacity caused by service-connected conditions.¹ That single difference in purpose drives everything else.

DoD medical retirement pay comes from the Defense Finance and Accounting Service and is funded through the military retirement system. VA disability compensation is a separate entitlement under Title 38 of the U.S. Code.

Who Qualifies

When the Physical Evaluation Board finds a service member unfit for duty, what happens next depends on the rating and years of service.²

At 30% or higher, or with 20+ years of service, the member is medically retired and placed on the Permanent Disability Retired List (PDRL) or the Temporary Disability Retired List (TDRL). They receive monthly retirement pay and keep access to TRICARE.
Below 30% with fewer than 20 years, the member is medically separated, not retired, and receives a one-time disability severance payment instead of ongoing pay.²

VA disability compensation has no fitness-for-duty threshold. Any veteran with a service-connected condition rated at 0% or higher can qualify, though 0% carries no monthly payment.

What Each System Rates

This is where the two systems diverge most sharply, and it explains why so many veterans end up with a much higher VA rating than DoD rating. The DoD rates only the specific condition the Physical Evaluation Board finds “unfitting,” meaning the condition that actually prevents you from doing your job.¹ A soldier with a bad knee, chronic migraines, PTSD, and tinnitus might be found unfit only for the knee. The DoD rates only the knee.

The VA evaluates the whole medical picture. That same soldier could receive separate VA ratings for the knee, migraines, PTSD, and tinnitus, all combined into a single overall rating that is often significantly higher than the DoD rating.³ That is why many veterans see a DoD rating of 30% or 40% alongside a VA combined rating of 70% or 80%.

Rating stability is also different. A DoD rating placed on the Permanent Disability Retired List does not change for the rest of your life.⁴ VA ratings can be increased if a condition worsens or decreased if the VA finds a condition has improved.³

How the Pay Is Calculated

DoD Medical Retirement Pay

DFAS calculates medical retirement pay two ways and pays the higher amount:⁵

Disability percentage method: the disability rating multiplied by the retired pay base, capped at 75%.
Years-of-service method: years of creditable service multiplied by 2.5%, then multiplied by the retired pay base, also capped at 75%.

For members who entered service on or after September 8, 1980, the retired pay base is the average of the highest 36 months of basic pay.⁴ For someone retired with relatively few years of service, the disability percentage method usually produces the higher figure.

Members placed on the TDRL are paid at a minimum 50% calculation while their condition stabilizes, even if their actual rating is 30% or 40%.² Members placed on the TDRL on or after January 1, 2017, can remain there up to three years; those placed before that date could remain up to five.

VA Disability Compensation

VA compensation is a flat monthly amount based on the combined disability rating and the number of dependents. Rank and years of service do not factor in. A single veteran with no dependents currently receives:⁶

10%: $180.42
30%: $552.47
50%: $1,132.90
70%: $1,808.45
100%: $3,938.58

Veterans rated 30% or higher receive additional compensation for a spouse, children, and dependent parents. A veteran rated 100% with a spouse and one child receives $4,318.99 per month.⁶

Disability Severance (Below 30%)

If you were found unfit but rated below 30% with fewer than 20 years, you get a one-time payment instead of monthly retirement. The formula is two months of basic pay multiplied by years of service, capped at 19 years, with a minimum of three years credited (six years if the disability was incurred in a combat zone).⁷

Taxes

VA disability compensation is completely tax-free at the federal and state level and does not appear on your tax return.⁸

DoD military retirement pay, including medical retirement pay, is generally taxable as ordinary income. Medical retirement pay may be excluded from federal taxable income if the disability is combat-related, or if you are also entitled to VA disability compensation, in which case the exclusion is limited to the amount of the VA entitlement.⁹

State treatment varies. A growing number of states fully exempt military retirement pay, including Alabama, Arizona, Illinois, Indiana, Kansas, New York, North Carolina, and Ohio, and nine states have no state income tax at all. A handful still tax it partially or fully.¹⁰ California began offering a partial exemption of up to $20,000 for qualifying military retirees starting in 2025.¹¹

Can You Collect Both?

Not in full, at least not by default. Federal law bars most retirees from collecting full DoD retirement pay and full VA disability compensation at the same time. Military retired pay is reduced dollar-for-dollar by the amount of VA disability compensation. This is the “VA waiver” or “VA offset.”¹² Because VA compensation is tax-free and DoD retirement is taxable, most retirees waive the DoD pay in favor of the VA pay. Either way, the two amounts don’t stack.

Congress created two programs that can restore the waived pay for certain groups.

Concurrent Retirement and Disability Pay (CRDP)

CRDP eliminates the offset for retirees who meet two conditions: a VA rating of 50% or higher, and either 20+ years of military service or an age-eligible reserve retirement.¹³ It was phased in over ten years starting January 1, 2004, with full implementation in January 2014.¹⁴ Veterans rated 100% or individually unemployable had the phase-in eliminated early, in 2005 and 2008. CRDP enrollment is automatic and the restored pay is taxable.¹⁵

The critical limitation: Chapter 61 medical retirees who did not complete 20 years of creditable service are not eligible for CRDP.¹³ For these veterans, the dollar-for-dollar offset stays in place, and their monthly compensation ends up being effectively the higher of the two amounts, not the sum.

Combat-Related Special Compensation (CRSC)

CRSC pays a tax-free monthly amount to retirees whose disabilities are tied to combat, hazardous duty, war simulation, or an instrumentality of war.¹⁶ Unlike CRDP, it requires only a 10% VA rating and is available to Chapter 61 medical retirees with fewer than 20 years, following an expansion in the 2008 National Defense Authorization Act.¹⁷

CRSC is not automatic. You apply through your branch of service using DD Form 2860 and must provide evidence linking the disability to a qualifying combat-related event.¹⁸ The branch’s CRSC board conducts its own review, regardless of what the VA or PEB previously determined.¹⁹

For Chapter 61 retirees with fewer than 20 years, a special cap limits the CRSC payment to the difference between disability-based retired pay and what the retiree would have received based on years of service alone. For someone with very few years, that can significantly reduce or even eliminate the benefit.¹⁷

Choosing Between CRDP and CRSC

Veterans who qualify for both must pick one; you cannot collect both at the same time.¹² The decision usually turns on tax math. CRSC is tax-free but only covers combat-related disabilities, so if your combat-related rating is much lower than your overall VA rating, taxable CRDP may put more money in your pocket after taxes.²⁰ You can switch between the two during an annual open season each December.

Severance Pay Recoupment

If you were medically separated (below 30%, fewer than 20 years) and received disability severance, the VA will withhold your entire monthly disability check until the after-tax amount of the severance is fully recovered.²¹ Someone who received $10,000 in severance and is awarded $1,000 per month in VA compensation would have payments withheld for ten months.³

The recoupment is classified as a statutory offset, not a VA debt, so the VA’s standard financial hardship waiver provisions do not apply.²² One exception: veterans who received severance for a combat-related injury and separated on or after January 28, 2008, may be exempt.²¹

Healthcare

Medically retired members qualify for TRICARE and must enroll within 90 days of the retirement date.²³ Chapter 61 disability retirees are exempt from annual increases in TRICARE Prime enrollment fees and pharmacy copayments that apply to other retirees, provided their DEERS records correctly reflect their Chapter 61 status.²⁴

Medically separated members do not get the same ongoing TRICARE access. Their service branch may grant 180 days of coverage under the Transitional Assistance Management Program, which has no premiums and covers TRICARE Prime, TRICARE Select, and military treatment facilities.²⁵ After that, temporary coverage is available through the Continued Health Care Benefit Program.²⁶

On the VA side, a service-connected rating of 50% or higher puts you in the highest VA healthcare priority group. Ratings between 30% and 50% qualify for VA care at a lower priority level.³

1
MyArmyBenefits. Veterans Affairs Schedule for Rating Disabilities
2
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3
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4
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21
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26
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