If you retired from the military and you’re drawing VA disability compensation, you are probably paying more in taxes than you have to. Not because of a loophole. Because of a form you haven’t filed yet.
The Problem: The VA Offset
For most of military history, receiving both military retirement pay and VA disability compensation was called double-dipping. Your retirement pay was reduced — dollar for dollar — by whatever VA compensation you received.
Concurrent receipt laws changed that. Two programs now restore the offset:
- CRDP — Concurrent Retirement and Disability Pay
- CRSC — Combat-Related Special Compensation
Both give you money back. But they are not the same, and the difference is taxes.
CRDP: Automatic, But Taxable
CRDP is the default. If you have 20 or more years of service and a VA disability rating of 50% or higher, you are already enrolled. DFAS handles it automatically — no application.
The catch: the restored retirement pay is taxable. It shows up on your 1099-R. Depending on your bracket, you’re handing 22–32% of that restoration back to the IRS every year.
CRSC: Apply Once, Keep the Tax Savings
CRSC differs in two ways.
First, it only covers combat-related disabilities — not merely service-connected ones. Combat-related means the condition came from direct combat, an instrumentality of war (aircraft, weapons systems, explosives used in combat operations), hazardous duty, or training designed to simulate combat. A knee injury from running patrols in Kandahar qualifies. A knee injury from a PT run at Fort Bragg likely does not.
Second, CRSC payments are excluded from federal taxable income under 26 U.S.C. § 104. The IRS does not touch them.
To get CRSC, file DD Form 2860 with your branch of service. Once approved, DFAS compares your CRSC benefit to your CRDP benefit and pays whichever is higher automatically. You don’t manage the comparison — but you have to put yourself in the running.
Fair warning: processing times have stretched. Expect 12–18 months depending on your branch. File early. Approval is generally retroactive to your application date.
You Cannot Receive Both
By law, you elect one or the other each year. DFAS runs the math and pays the higher amount — but you are on one program at a time. The annual election window exists so you can switch if your situation changes.
The Tax Math: What This Actually Costs You
A retired O-5, 22 years of service, 70% VA rating — all combat-related. Using 2026 official rates:
- Monthly gross military retirement: $4,200 (illustrative — use your actual pay statement)
- Monthly VA compensation (70%, veteran alone): $1,808.45 (official 2026 rate)
- Monthly concurrent receipt restoration: $1,808.45
Under CRDP at a 22% federal bracket:
- Annual restored amount: $21,701
- Tax owed: ~$4,774
- Take-home: ~$16,927/year
Under CRSC — same dollars, no tax:
- Take-home: $21,701/year
Annual difference: ~$4,774. Over ten years: $47,000+ before COLA adjustments.
Choosing the wrong program is not a paperwork mistake. It is $4,000–$5,000 per year, every year, for the rest of your life.
What Qualifies as Combat-Related
This is where applications get approved or denied.
DFAS and your branch look for documentation tying the condition to one of four categories:
- Direct combat — injury while engaged with the enemy
- Instrumentality of war — injury from military equipment used in combat operations
- Hazardous duty — parachute operations, flight duty, demolition
- Simulated war exercises — training specifically designed to replicate combat conditions
Submit: medical records showing how and when, service records placing you at that location, buddy statements from witnesses, and line of duty determinations if they exist.
A combat zone tour does not automatically make every disability combat-related. The nexus connects the specific condition to a qualifying event.
When CRSC Gets Denied
The most common reason: documentation shows the condition is service-connected, not that it was combat-caused. Those are different standards.
Appeal by submitting a reconsideration with tighter documentation — a more specific medical narrative, additional buddy statements, or a private medical opinion linking the condition to the combat event. Better documentation wins a significant share of reconsideration cases.
The SBP Wrinkle
If you have a Survivor Benefit Plan election, run this calculation before deciding.
Under CRDP, the restored retirement pay counts toward your SBP base. Your spouse’s annuity calculation includes it.
Under CRSC, it does not. Your spouse’s annuity is calculated only on your regular retirement pay.
If your spouse depends heavily on the SBP, CRDP’s taxable income may still be worth it. For most retirees without a large SBP election, CRSC wins on take-home pay.
CRSC vs. CRDP at a Glance
| CRDP | CRSC | |
|---|---|---|
| Eligibility | 20+ years, 50%+ VA rating | Combat-related disability, 10%+ VA rating |
| Application | None (automatic) | DD Form 2860, through your branch |
| Taxable | Yes | No |
| SBP base | Included | Not included |
| Can you receive both? | No — elect one | No — elect one |
| Processing time | Automatic via DFAS | 12–18 months (varies by branch) |
Decision Flowchart
Work through these in order:
-
Is your disability combat-related?
- No → CRDP is your program (automatic at 50%+ rating, 20+ years service)
- Yes → go to 2
-
Do you have 20+ years of service?
- No → CRSC is your only concurrent receipt option (also applies to Chapter 61 medical retirees)
- Yes → go to 3
-
Is SBP a major part of your family’s financial plan?
- Yes → model both before filing; CRDP’s higher SBP base may matter
- No → file DD Form 2860. The tax-free status nearly always wins.
Apply here:
- Army: HRC CRSC page
- Navy/Marines: SECNAV CRSC Board
- Air Force/Space Force: AFPC
- Coast Guard: Through PSC (Personnel Service Center)
Do This Now
File DD Form 2860 if you have 20+ years of service and any disability with a reasonable combat connection.
DFAS compares and pays the higher amount. If CRDP still wins after the comparison (possible in some SBP-heavy scenarios), you stay on CRDP. If CRSC is higher — and for most combat veterans it will be, after taxes — you switch.
No one at DFAS will suggest this. This is your calculation to run, your application to file, and your money to keep.
Disclaimer: Not official financial or legal advice. Benefit amounts, tax laws, and program rules change. Verify current rates and requirements at VA.gov and DFAS.mil before making any elections. This site is not affiliated with the VA, DoD, or DFAS.