Under certain circumstances a military retiree may choose to waive part or all of their military retirement pay. A waiver is the relinquishment of all or a portion of one benefit to qualify for another benefit. Veterans frequently waive only so much of their retired pay as is equal to the amount of VA disability compensation to which they are entitled. Since this compensation is not taxable but retired pay from the Armed Forces based on age or length of service is, there is an obvious advantage to waiving retired pay. The following is a summary of the waiver of pay for retirees:
Laws That Authorize Waiver of Pay
Retired pay is a statutory right and, as such, cannot be waived except as authorized by law. These two laws authorize a member to waive entitlement to retired pay:
- 38 U.S.C. 5305 (reference (ar)) permits a member to receive compensation or pension from the Department of Veterans Affairs (VA).
- 5 U.S.C. 8332(c) (reference (az)) permits a member to include creditable military service in computing a civil service retirement annuity.
Waiving Retirement Pay for VA Benefits
A member who waives his or her retired pay in order to receive VA compensation or a pension may benefit for these reasons:
- VA benefits are nontaxable income for federal, state, and local income taxation.
- VA benefits may exceed the retired pay entitlement.
- A retired Regular officer who also is employed by the federal government and is subject to the dual compensation statutes may have that reduction reduced because of the waiver of retired pay to receive VA benefits.
Concurrent receipt means to receive both military retirement benefits and VA disability compensation. Up until 2004 a retiree receiving retired pay who was also eligible to receive disability compensation/pension from the Department of Veterans Affairs was barred from receiving concurrent payments of both retired pay and the VA benefit, unless the member elected to waive that portion of retired pay that is equal to the amount of the VA benefit awarded.
Since 2004 military retirees with a VA rated disability of 50% or more are no longer being required to waive military retirement pay to receive a VA disability compensation.
However military retirees with a VA rated disability of 40% or less are still required to waive a portion of their military retirement pay to receive compensation.
Click here to learn more about Concurrent Retirement and Disability Pay (CRDP).
Note: A retiree receiving retired pay who also is eligible to receive an improved VA pension from the Department of Veterans Affairs is not required to waive any retired pay effective October 1, 1980.
Waiving Military Retirement Pay for Civil Servant Pension
Credit for Military Service Veterans who gain civil service employment are given credit for their years of military service for retirement purposes. However Military retirees cannot apply their years of military service toward civil service retirement if they receive military retired pay. (See "Exceptions to the Rule" below)
In other words, military retirees must waive their military retirement pay if they wish to use their years of military service to increase their civil service years and receive an increased annuity through either the Civil Service Retirement System (CSRS) or Federal Employee Retirement System (FERS).
If you do not waive your military retired pay, your retirement rights (and those of your surviving spouse, if any) will be based on your civilian service only and military service will not be included in computing the annuity. You may then receive both your military retired pay and your civil service annuity at the same time.
For example: A military retiree with 20 years of service and 25 years of civil service can combine the two to receive credit for a total of 45 years of federal service under CSRC and FERS, but only if they choose to waive their military retirement pay.
Combining the credit for both periods of service can greatly increase the CSRC and FERS annuity. Be sure to carefully weigh the difference in your retirement income (annuity) benefit options against your current income needs before choosing.
Contact your Human Resources Office to request a benefit estimate for retirement based on your civil service years alone and an estimate based on combined civilian and military service.
Exceptions to the Rule
If a retiree has been awarded the retired pay on account of a service-connected disability either incurred in combat with an enemy of the United States or caused by an instrumentality of war and incurred in the line of duty during a period of war, or under the provisions of Chapter 67, Title 10, U.S.C. (pertaining to retirement from a reserve component of the Armed Forces).
National Guard Service
Service in the National Guard, except when ordered to active duty in the service of the United States, is generally not creditable. However, you may receive credit for National Guard service, followed by Federal civilian reemployment that occurs after August 1, 1990, when all of the following conditions are met:
The service must interrupt civilian service creditable under the Civil Service Retirement System (or FERS) and be followed by reemployment in accordance with the appropriate chapter of the laws concerning Veterans Benefits. It must be full-time, not inactive duty, and you must be a member of the U.S. Army National Guard, or U.S. Air National Guard. Also, it must be under a specified law and you must be entitled to pay from the U.S. (Or have waived pay from the U.S.) for the service.
If you have any questions concerning National Guard credit, see your personnel office.