## Section B. Recoupment of Readjustment, Separation, and Severance Pay

#### Overview

+------------+---------------------------------------------------------+
| #          | > This section contains the following topics:           |
| #### In th |                                                         |
| is Section |                                                         |
+------------+---------------------------------------------------------+

  ------------ ---------------------------------------------- ------------
  Topic        Topic Name                                     See Page

  5            General Information on Recoupment of Benefits  4-B-2

  6            Determining the Amount of Recoupment and       4-B-7
               Withholding                                    

  7            Recoupment and Withholding Procedures for      4-B-15
               Severance Pay                                  

  8            Recoupment and Withholding Procedures for      4-B-23
               Special Separation Benefit (SSB) and Voluntary 
               Separation Incentive (VSI)                     

  9            Preparing Awards and Notifying the Beneficiary 4-B-29

  10           Amending and Adjusting an Award Subject to     4-B-34
               Recoupment                                     
  ------------ ---------------------------------------------- ------------

#### 5. General Information on the Recoupment of Benefits

+------------+---------------------------------------------------------+
| ##### In   | > This topic contains general information on recoupment |
| troduction | > of benefits, including                                |
|            |                                                         |
|            | -   prohibition against duplication of benefits         |
|            |                                                         |
|            | -   recouping from VA                                   |
|            |                                                         |
|            | ```{=html}                                              |
|            | <!-- -->                                                |
|            | ```                                                     |
|            | -   pension benefits, and                               |
|            |                                                         |
|            | -   compensation benefits                               |
|            |                                                         |
|            | ```{=html}                                              |
|            | <!-- -->                                                |
|            | ```                                                     |
|            | -   readjustment pay under former                       |
|            |                                                         |
|            | ```{=html}                                              |
|            | <!-- -->                                                |
|            | ```                                                     |
|            | -   10 U.S.C. 3814a, or                                 |
|            |                                                         |
|            | -   10 U.S.C. 687                                       |
|            |                                                         |
|            | ```{=html}                                              |
|            | <!-- -->                                                |
|            | ```                                                     |
|            | -   effect of *Public Law (PL) 87-509* on readjustment  |
|            |     pay                                                 |
|            |                                                         |
|            | -   separation pay under 10 U.S.C. 1174                 |
|            |                                                         |
|            | -   reservists' involuntary separation pay (RISP) and   |
|            |     reservists' special separation pay (RSSP), and      |
|            |                                                         |
|            | -   non-disability severance pay.                       |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| ##### C    | > January 12, 2007                                      |
| hange Date |                                                         |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| ##         | > Some veterans may receive various readjustment,       |
| ### a. Pro | > separation, and severance payments from service       |
| hibition A | > departments that must be recouped in full or in part  |
| gainst Dup | > from Department of Veterans Affairs (VA) benefit      |
| lication o | > payments.                                             |
| f Benefits | >                                                       |
|            | > [38 CFR                                               |
|            | > 3.700](http://                                        |
|            | www.warms.vba.va.gov/regs/38CFR/BOOKB/PART3/S3_700.DOC) |
|            | > prohibits duplication of payments when a veteran      |
|            | > receives                                              |
|            |                                                         |
|            | -   active duty pay for return to active duty, as       |
|            |     described in M21-1MR, Part III, Subpart v, 4.C.16.a |
|            |                                                         |
|            | -   military retired pay; with information on           |
|            |                                                         |
|            | ```{=html}                                              |
|            | <!-- -->                                                |
|            | ```                                                     |
|            | -   restrictions to compensation and retired pay at [38 |
|            |     CFR                                                 |
|            |     3.750](http://w                                     |
|            | ww.warms.vba.va.gov/regs/38CFR/BOOKB/PART3/S3_750.DOC), |
|            |     and                                                 |
|            |                                                         |
|            | -   exceptions to restrictions at M21-1MR, Part III,    |
|            |     Subpart v, 5.A.1.a                                  |
|            |                                                         |
|            | ```{=html}                                              |
|            | <!-- -->                                                |
|            | ```                                                     |
|            | -   lump sum readjustment pay under former 10 U.S.C.    |
|            |     687 and 3814a                                       |
|            |                                                         |
|            | -   separation pay under [10 U.S.C.                     |
|            |     1174](http://assembler.law.cornell.edu              |
|            | /uscode/html/uscode10/usc_sec_10_00001174----000-.html) |
|            |                                                         |
|            | -   Special Separation Benefit (SSB) under [10 U.S.C.   |
|            |     1174a](http://assembler.law.cornell.edu             |
|            | /uscode/html/uscode10/usc_sec_10_00001174---a000-.html) |
|            |                                                         |
|            | -   Voluntary Separation Incentive (VSI) under [10      |
|            |     U.S.C.                                              |
|            |     1175](http://assembler.law.cornell.edu              |
|            | /uscode/html/uscode10/usc_sec_10_00001175----000-.html) |
|            |                                                         |
|            | -   disability severance pay under [10 U.S.C.           |
|            |     1212(c)](http://assembler.law.cornell.edu/          |
|            | uscode/html/uscode10/usc_sec_10_00001212----000-.html), |
|            |     and/or                                              |
|            |                                                         |
|            | -   non-disability severance pay under [10 U.S.C.       |
|            |     1174(h)(2)](http://assembler.law.cornell.edu/       |
|            | uscode/html/uscode10/usc_sec_10_00001174----000-.html). |
+------------+---------------------------------------------------------+

Continued on next page

5\. General Information on the Recoupment of Benefits, Continued

+------------+---------------------------------------------------------+
| ###        | > Do *not* recoup the following benefits when a veteran |
| ## b. Reco | > becomes entitled to Department of Veterans Affairs    |
| uping From | > (VA) pension benefits:                                |
|  VA Pensio |                                                         |
| n Benefits | -   readjustment pay                                    |
|            |                                                         |
|            | -   separation pay under [10 U.S.C.                     |
|            |     1174](http://assembler.law.cornell.edu/             |
|            | uscode/html/uscode10/usc_sec_10_00001174----000-.html), |
|            |     or                                                  |
|            |                                                         |
|            | -   severance pay.                                      |
|            |                                                         |
|            | > However, these benefits are countable income if       |
|            | > received after the date of entitlement to VA pension. |
|            | > Count the gross amount received, including any        |
|            | > amounts withheld for tax purposes.                    |
|            | >                                                       |
|            | > ***Note***: [*Public Law (PL) 104-201, Section        |
|            | > 653                                                   |
|            | *](http://www.access.gpo.gov/nara/publaw/104publ.html), |
|            | > regarding the recoupment of "after tax" amounts, does |
|            | > *not* apply to pension.                               |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| ##### c.   | > The table below lists the benefits to recoup when a   |
|  Recouping | > veteran becomes entitled to VA compensation benefits  |
|  From VA C | > and includes cross-references to specific information |
| ompensatio | > about recouping those benefits.                       |
| n Benefits |                                                         |
+------------+---------------------------------------------------------+

+-------------------------------------+--------------------------------+
| Benefit                             | Reference                      |
+-------------------------------------+--------------------------------+
| Readjustment pay awarded under      | > See                          |
| former 10 U.S.C. 3814a              |                                |
|                                     | -   M21-1MR, Part III, Subpart |
|                                     |     v, 4.B.5.d, and            |
|                                     |                                |
|                                     | -   M21-1MR, Part III, Subpart |
|                                     |     v, 4.B.5.f.                |
+-------------------------------------+--------------------------------+
| > Readjustment pay awarded under    | > See                          |
| > former 10 U.S.C. 687              |                                |
|                                     | -   M21-1MR, Part III, Subpart |
|                                     |     v, 4.B.5.e, and            |
|                                     |                                |
|                                     | -   M21-1MR, Part III, Subpart |
|                                     |     v, 4.B.5.f.                |
+-------------------------------------+--------------------------------+
| > Separation pay awarded under [10  | See M21-1MR, Part III, Subpart |
| > U.S.C.                            | v, 4.B.5.g.                    |
| > 1174](http://assembler.           |                                |
| law.cornell.edu/uscode/html/uscode1 |                                |
| 0/usc_sec_10_00001174----000-.html) |                                |
+-------------------------------------+--------------------------------+
| -   SSB awarded under [10 U.S.C.    | See M21-1MR, Part III, Subpart |
|     1174a](http://assembler.        | v, 4.B.8.                      |
| law.cornell.edu/uscode/html/uscode1 |                                |
| 0/usc_sec_10_00001174---a000-.html) |                                |
|                                     |                                |
| -   VSI awarded under [10 U.S.C.    |                                |
|     1175](http://assembler.         |                                |
| law.cornell.edu/uscode/html/uscode1 |                                |
| 0/usc_sec_10_00001175----000-.html) |                                |
+-------------------------------------+--------------------------------+

Continued on next page

5\. General Information on the Recoupment of Benefits, Continued

  -----------------------------------------------------------------------
  c\. Recouping From VA Compensation Benefits (continued)

  -----------------------------------------------------------------------

+-------------------------------------------+--------------------------+
| Benefit                                   | Reference                |
+-------------------------------------------+--------------------------+
| -   Reservist involuntary separation pay  | See M21-1MR, Part III,   |
|     (RISP)                                | Subpart v, 4.B.5.h.      |
|                                           |                          |
| -   Reservist special separation pay      |                          |
|     (RSSP)                                |                          |
+-------------------------------------------+--------------------------+
| > Disability severance pay                | > See M21-1MR, Part III, |
|                                           | > Subpart v, 4.B.7.      |
+-------------------------------------------+--------------------------+
| > Non-disability severance pay            | See M21-1MR, Part III,   |
|                                           | Subpart v, 4.B.5.i.      |
+-------------------------------------------+--------------------------+

+------------+---------------------------------------------------------+
| ####       | > Readjustment pay under former 10 U.S.C. 3814a was     |
| # d. Readj | > paid to regular officers below the rank of major      |
| ustment Pa | > discharged during a reduction in force. The authority |
| y Under Fo | > for making these payments expired at the end of 1977. |
| rmer 10 U. | >                                                       |
| S.C. 3814a | > When a veteran received readjustment pay under former |
|            | > 10 U.S.C. 3814a, the date of entitlement to VA        |
|            | > compensation determines if the recoupment of          |
|            | > readjustment pay is required.                         |
|            | >                                                       |
|            | > ***Reference***: For more information on the effect   |
|            | > of *PL 87-509* on readjustment pay under former 10    |
|            | > U.S.C. 3814a, see M21-1MR, Part III, Subpart v,       |
|            | > 4.B.5.f.                                              |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| ##         | > Readjustment pay under former 10 U.S.C. 687 was paid  |
| ### e. Rea | > to reserve officers who were involuntarily released   |
| djustment  | > after completing at least five years of active        |
| Pay Under  | > service but did not qualify for retirement. The       |
| Former 10  | > authority for making these payments was repealed      |
| U.S.C. 687 | > effective September 15, 1981.                         |
|            | >                                                       |
|            | > Recoupment of VA compensation is *always* required if |
|            | > a veteran received readjustment pay under former 10   |
|            | > U.S.C. 687.                                           |
|            | >                                                       |
|            | > ***Reference***: For more information on the effect   |
|            | > of *PL 87-509* on readjustment pay under former 10    |
|            | > U.S.C. 687, see M21-1MR, Part III, Subpart v,         |
|            | > 4.B.5.f.                                              |
+------------+---------------------------------------------------------+

Continued on next page

5\. General Information on the Recoupment of Benefits, Continued

+------------+---------------------------------------------------------+
| #####      | > *PL 87-509*, enacted June 28, 1962, liberalized the   |
| f. Effect  | > former law that required veterans to make a one-time, |
| of Public  | > irrevocable election between compensation and         |
| Law 87-509 | > readjustment pay. The prior election no longer        |
|  on Readju | > precludes payment of compensation if otherwise        |
| stment Pay | > eligible.                                             |
|            | >                                                       |
|            | > On or after June 28, 1962, if                         |
|            |                                                         |
|            | -   a claims folder is encountered in which the         |
|            |     veteran's claim for compensation was previously     |
|            |     barred under the former law, compensation may now   |
|            |     be awarded subject to                               |
|            |                                                         |
|            | ```{=html}                                              |
|            | <!-- -->                                                |
|            | ```                                                     |
|            | -   recoupment of the readjustment pay, and             |
|            |                                                         |
|            | -   effective dates for liberalizing legislation as     |
|            |     provided in [38 CFR                                 |
|            |     3.114(a)](http://w                                  |
|            | ww.warms.vba.va.gov/regs/38CFR/BOOKB/PART3/S3_114.DOC), |
|            |     and                                                 |
|            |                                                         |
|            | ```{=html}                                              |
|            | <!-- -->                                                |
|            | ```                                                     |
|            | -   potential eligibility for compensation exists based |
|            |     on the former claim, but evidence is insufficient   |
|            |     to make a decision, notify the veteran of the       |
|            |     evidence necessary to establish eligibility and     |
|            |     develop for the evidence in accordance with [38 CFR |
|            |     3.159(b)](http://w                                  |
|            | ww.warms.vba.va.gov/regs/38CFR/BOOKB/PART3/S3_159.DOC). |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| ####       | > Separation pay under [10 U.S.C.                       |
| # g. Separ | > 1174](http://assembler.law.cornell.edu                |
| ation Pay  | /uscode/html/uscode10/usc_sec_10_00001174----000-.html) |
| Under 10 U |                                                         |
| .S.C. 1174 | -   replaced readjustment pay effective September 15,   |
|            |     1981, and                                           |
|            |                                                         |
|            | -   is paid to regular and reserve officers who         |
|            |                                                         |
|            | ```{=html}                                              |
|            | <!-- -->                                                |
|            | ```                                                     |
|            | -   are involuntarily discharged after completing at    |
|            |     least five years of active duty, but                |
|            |                                                         |
|            | -   do *not* qualify for retirement                     |
|            |                                                         |
|            | ```{=html}                                              |
|            | <!-- -->                                                |
|            | ```                                                     |
|            | -   is paid to regular enlisted members under *PL       |
|            |     101-510, Section 501*, enacted November 5, 1990.    |
|            |     The separation allowance is payable to the enlisted |
|            |     members who                                         |
|            |                                                         |
|            | ```{=html}                                              |
|            | <!-- -->                                                |
|            | ```                                                     |
|            | -   are involuntarily discharged after completing six   |
|            |     years active service, and                           |
|            |                                                         |
|            | -   do *not* qualify for retirement.                    |
|            |                                                         |
|            | > ***Reference***: For information on determining the   |
|            | > amount to be recouped, see M21-1MR, Part III, Subpart |
|            | > v, 4.B.6.b.                                           |
+------------+---------------------------------------------------------+

Continued on next page

5\. General Information on the Recoupment of Benefits, Continued

+------------+---------------------------------------------------------+
| ##### h    | > *PL 102-484, Section 4418* provides for paying        |
| . Reservis | > Reservist Involuntary Separation Pay (RISP) to        |
| t Involunt | > certain reservists who are involuntarily released     |
| ary Separa | > from the Selected Reserve because their units are     |
| tion Pay ( | > being deactivated.                                    |
| RISP), and | >                                                       |
|  Reservist | > *PL 102-484, Section 4416* provides for payment of    |
|  Special S | > Reservist Special Separation Pay (RSSP), an           |
| eparation  | > immediate, reduced annuity that is paid for a         |
| Pay (RSSP) | > five-year period or until the reservist reaches age   |
|            | > 60.                                                   |
|            | >                                                       |
|            | > Under [*VAOPGCPREC                                    |
|            | > 9-96*](http://www1.va.gov/ogc/docs/Prc09-96.doc)      |
|            | > General Counsel held that VA is                       |
|            |                                                         |
|            | -   required to offset disability compensation in order |
|            |     to recoup the amount of RISP received by a veteran, |
|            |     provided that the VA compensation is for a          |
|            |     disability incurred in or aggravated by service     |
|            |     prior to the date of receipt of RISP, and           |
|            |                                                         |
|            | -   *not* required to offset disability compensation to |
|            |     recoup the amount of RSSP received by a veteran.    |
|            |                                                         |
|            | > ***Note***: For award purposes, treat RISP as         |
|            | > separation pay.                                       |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| ##### i    | > Non-disability severance pay awarded under former     |
| . Non-Disa | > Chapters 359, 360, 859, and 860 of 10 U.S.C. is a     |
| bility Sev | > lump-sum payment paid to officers who were separated, |
| erance Pay | > usually due to their failure to meet standards of     |
|            | > performance.                                          |
|            | >                                                       |
|            | > Non-disability severance pay awarded under these      |
|            | > former Chapters of 10 U.S.C. is subject to recoupment |
|            | > unless the veteran established entitlement to         |
|            | > disability compensation effective *before* September  |
|            | > 15, 1981, per *PL 96-513, Section 631*, as described  |
|            | > in [10 U.S.C.                                         |
|            | > 1174(h)(2)](http://assembler.law.cornell.edu/         |
|            | uscode/html/uscode10/usc_sec_10_00001174----000-.html). |
|            | >                                                       |
|            | > ***Important***: Do not confuse disability severance  |
|            | > pay with the non-disability severance pay awarded     |
|            | > under these former Chapters.                          |
|            | >                                                       |
|            | > ***Note***: *PL 96-513*, effective September 15,      |
|            | > 1981, repealed former Chapters 359, 360, 859, and 860 |
|            | > of 10 U.S.C.                                          |
|            | >                                                       |
|            | > ***Reference***: For more information on the          |
|            | > recoupment of non-disability severance pay, see       |
|            |                                                         |
|            | -   [*VAOPGCPREC                                        |
|            |     12-96*](http://www1.va.gov/ogc/docs/Prc12-96.doc)   |
|            |                                                         |
|            | -   M21-1MR, Part III, Subpart v, 4.B.6.b, and          |
|            |                                                         |
|            | -   [38 CFR                                             |
|            |     3.700(a)(3)](http://w                               |
|            | ww.warms.vba.va.gov/regs/38CFR/BOOKB/PART3/S3_700.DOC). |
+------------+---------------------------------------------------------+

#### 6. Determining the Amount of Recoupment and Withholding

+------------+---------------------------------------------------------+
| ##### In   | > This topic contains information on                    |
| troduction |                                                         |
|            | -   factors in determining the total recoupment amount  |
|            |                                                         |
|            | -   required information for deciding the amount of     |
|            |     recoupment                                          |
|            |                                                         |
|            | -   the recoupment amount for readjustment, separation, |
|            |     and severance pay                                   |
|            |                                                         |
|            | -   calculating the Federal income tax withholding for  |
|            |     readjustment and separation pay                     |
|            |                                                         |
|            | -   handling the recoupment of separation or            |
|            |     readjustment pay by both VA and the service         |
|            |     department                                          |
|            |                                                         |
|            | -   handling changes in offset or recoupment methods    |
|            |                                                         |
|            | -   withholding compensation received for service       |
|            |                                                         |
|            | ```{=html}                                              |
|            | <!-- -->                                                |
|            | ```                                                     |
|            | -   prior to readjustment or separation payments, and   |
|            |                                                         |
|            | -   prior *and* subsequent to readjustment or           |
|            |     separation payments                                 |
|            |                                                         |
|            | ```{=html}                                              |
|            | <!-- -->                                                |
|            | ```                                                     |
|            | -   special withholding procedures for disability       |
|            |     severance pay, SSB, and VSI, and                    |
|            |                                                         |
|            | -   withholding for non-disability severance pay.       |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| ##### C    | > January 12, 2007                                      |
| hange Date |                                                         |
+------------+---------------------------------------------------------+

Continued on next page

6\. Determining the Amount of Recoupment and Withholding, Continued

+------------+---------------------------------------------------------+
| ##### a.   | > The following factors have historically determined    |
| Factors in | > the total amount VA must recoup from compensation     |
|  Determini | > benefits:                                             |
| ng the Tot |                                                         |
| al Recoupm | -   the date of receipt of separation, readjustment, or |
| ent Amount |     severance pay, and                                  |
|            |                                                         |
|            | -   the date of entitlement to VA compensation.         |
|            |                                                         |
|            | > Once VA determines the recoupment amount, it usually  |
|            | > begins partial or total withholding of the veteran's  |
|            | > monthly benefit until it recoups that amount.         |
|            | >                                                       |
|            | > For more information on determining the total amount  |
|            | > of recoupment, see M21-1MR, Part III, Subpart v,      |
|            | > 4.B.6.c.                                              |
|            | >                                                       |
|            | > For more information on determining the monthly       |
|            | > withholding, see M21-1MR, Part III, Subpart v,        |
|            | > 4.B.7.c.                                              |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| ##### b    | > If any of the following amounts cannot be ascertained |
| . Required | > from the evidence of record, send a Personnel         |
|  Informati | > Information Exchange System (PIES) request to verify: |
| on for Dec |                                                         |
| iding the  | -   readjustment pay                                    |
| Amount of  |                                                         |
| Recoupment | -   separation pay, or                                  |
|            |                                                         |
|            | -   disability severance pay (and the disabilities for  |
|            |     which severance pay was awarded.)                   |
|            |                                                         |
|            | > ***Notes***:                                          |
|            |                                                         |
|            | -   If the payment was made after September 30, 1996,   |
|            |     and there is a question as to whether the amount    |
|            |     reported by the service department is before or     |
|            |     after tax, ask the service department to confirm    |
|            |     that the amount reported is the amount after        |
|            |     withholding for Federal income tax.                 |
|            |                                                         |
|            | -   If an award subject to withholding for such         |
|            |     recoupment is terminated, *VA Form 20-6560, Notice  |
|            |     of Benefit Payment Transaction,* is automatically   |
|            |     issued furnishing the balance still to be           |
|            |     recovered, among other things.                      |
|            |                                                         |
|            | > ***References***: For automatic development through   |
|            | > MAP-D for PIES requests, see the *MAP-D User Guide*.  |
+------------+---------------------------------------------------------+

Continued on next page

6\. Determining the Amount of Recoupment and Withholding, Continued

+------------+---------------------------------------------------------+
| ####       | > Use the table below to determine the amount of        |
| # c. Recou | > severance pay to recoup.                              |
| pment Amou | >                                                       |
| nt for Rea | > ***Important***: *PL 104-201, Section 653* changed    |
| djustment, | > the procedure for applying withholding to disability  |
|  Separatio | > severance pay. If disability severance pay was paid   |
| n, and Sev |                                                         |
| erance Pay | -   prior to October 1, 1996, the pre-tax amount should |
|            |     be recouped, but                                    |
|            |                                                         |
|            | -   on or after October 1, 1996, the post-tax amount    |
|            |     should be recouped.                                 |
|            |                                                         |
|            | > ***Reference***: For information on calculating the   |
|            | > Federal income tax withholding for readjustment and   |
|            | > separation pay, see M21-1MR, Part III, Subpart v,     |
|            | > 4.B.6.c.                                              |
+------------+---------------------------------------------------------+

+------------------------------------+---------------------------------+
| If the veteran received ...        | Then recoup ...                 |
+------------------------------------+---------------------------------+
| readjustment pay under former 10   | the pre-tax amount.             |
| U.S.C. 3814(a) and the effective   |                                 |
| date of entitlement to VA          | ***Reference***: For more       |
| compensation is *on or after*      | information on lump-sum         |
| September 15, 1981 and on or       | readjustment pay for veterans,  |
| before September 30, 1996          | see [38 CFR 3.700(a)(2)(ii) and |
|                                    | (iii)](h                        |
| ***Note***: Recoupment is *not*    | ttp://www.warms.vba.va.gov/regs |
| required if the effective date of  | /38CFR/BOOKB/PART3/S3_700.DOC). |
| entitlement is *before* September  |                                 |
| 15, 1981.                          |                                 |
+------------------------------------+---------------------------------+
| readjustment pay under former 10   | 75 percent of the pre-tax       |
| U.S.C. 687 and the effective date  | readjustment pay.               |
| of entitlement to VA compensation  |                                 |
| is *before* September 15, 1981     |                                 |
+------------------------------------+---------------------------------+
| readjustment pay under former 10   | the pre-tax amount.             |
| U.S.C. 687 and the effective date  |                                 |
| of entitlement to VA compensation  | ***Reference***: For more       |
| is *on or after* September 15,     | information on lump-sum         |
| 1981 and on or before September    | readjustment pay for veterans,  |
| 30, 1996                           | see [38 CFR                     |
|                                    | 3.700(a)(2)](h                  |
|                                    | ttp://www.warms.vba.va.gov/regs |
|                                    | /38CFR/BOOKB/PART3/S3_700.DOC). |
+------------------------------------+---------------------------------+
| readjustment pay received after    | the post-tax amount.            |
| September 30, 1996                 |                                 |
|                                    | ***Reference***: For            |
|                                    | requirements of post-tax        |
|                                    | withholding, see [38 CFR        |
|                                    | 3.700(a)(2)(iii)](              |
|                                    | http://www.warms.vba.va.gov/reg |
|                                    | s/38CFR/BOOKB/PART3/S3_700.DOC) |
+------------------------------------+---------------------------------+

Continued on next page

6\. Determining the Amount of Recoupment and Withholding, Continued

  -----------------------------------------------------------------------
  c\. Recoupment Amount for Readjustment, Separation, and Severance Pay
  (continued)

  -----------------------------------------------------------------------

+------------------------------------+---------------------------------+
| If the veteran received ...        | Then recoup ...                 |
+------------------------------------+---------------------------------+
| separation pay under [10 U.S.C.    | -   the pre-tax amount if paid  |
| 1174](http://assembler.la          |     before October 1, 1996, or  |
| w.cornell.edu/uscode/html/uscode10 |                                 |
| /usc_sec_10_00001174----000-.html) | -   the post-tax amount if paid |
|                                    |     on or after October 1,      |
|                                    |     1996.                       |
|                                    |                                 |
|                                    | ***Reference***: For more       |
|                                    | information on separation pay,  |
|                                    | see [38 CFR                     |
|                                    | 3.700(a)(5)](h                  |
|                                    | ttp://www.warms.vba.va.gov/regs |
|                                    | /38CFR/BOOKB/PART3/S3_700.DOC). |
+------------------------------------+---------------------------------+
| disability severance pay where     | the pre-tax amount of           |
|                                    | disability severance pay.       |
| -   the disability(ies) found to   |                                 |
|     be service-connected are the   | ***Reference***: For            |
|     same as those for which        | information about severance pay |
|     disability severance pay is    | withholding, see [38 CFR        |
|     granted, and                   | 3.700(a)(3)](                   |
|                                    | http://www.warms.vba.va.gov/reg |
| -   the severance pay is issued    | s/38CFR/BOOKB/PART3/S3_700.DOC) |
|     ***on or** **before***         |                                 |
|     September 30, 1996             |                                 |
+------------------------------------+---------------------------------+
| disability severance pay where     | the post-tax amount of          |
|                                    | disability severance pay.       |
| -   the disability(ies) found to   |                                 |
|     be service-connected are the   | ***Reference***: For            |
|     same as those for which        | information about severance pay |
|     disability severance pay is    | withholding, see [38 CFR        |
|     granted, and                   | 3.700(a)(3)](                   |
|                                    | http://www.warms.vba.va.gov/reg |
| -   the severance pay is issued    | s/38CFR/BOOKB/PART3/S3_700.DOC) |
|     ***after*** September 30, 1996 |                                 |
+------------------------------------+---------------------------------+

Continued on next page

6\. Determining the Amount of Recoupment and Withholding, Continued

  -----------------------------------------------------------------------
  c\. Recoupment Amount for Readjustment, Separation, and Severance Pay
  (continued)

  -----------------------------------------------------------------------

+---------------------------------+------------------------------------+
| If the veteran received ...     | Then recoup ...                    |
+---------------------------------+------------------------------------+
| non-disability severance pay    | the pre-tax amount of severance    |
| where                           | pay.                               |
|                                 |                                    |
| -   the effective date of       | ***Reference***: For information   |
|     entitlement to VA           | about severance pay withholding,   |
|     compensation is *on or      | see [38 CFR                        |
|     **after*** September 15,    | 3.700(a                            |
|     1981, and                   | )(3)](http://www.warms.vba.va.gov/ |
|                                 | regs/38CFR/BOOKB/PART3/S3_700.DOC) |
| -   the severance pay is issued |                                    |
|     *on or* ***before***        |                                    |
|     September 30, 1996          |                                    |
+---------------------------------+------------------------------------+
| non-disability severance pay    | the post-tax amount of severance   |
| where                           | pay.                               |
|                                 |                                    |
| -   the effective date of       | ***Reference***: For information   |
|     entitlement to VA           | about severance pay withholding,   |
|     compensation is *on or      | see [38 CFR                        |
|     **after*** September 15,    | 3.700(a                            |
|     1981, and                   | )(3)](http://www.warms.vba.va.gov/ |
|                                 | regs/38CFR/BOOKB/PART3/S3_700.DOC) |
| -   the severance pay is issued |                                    |
|     *on or* ***after***         |                                    |
|     September 30, 1996          |                                    |
+---------------------------------+------------------------------------+

+-----------------------------------------------------------------------+
| > ***Note***: Non-disability severance pay was authorized under       |
| > former Chapters 359, 360, 859, and 860 of Title 10 U.S.C. Public    |
| > Law 96-513, effective September 15, 1981, repealed those chapters.  |
| > Non-disability severance pay is ***not*** subject to recoupment if  |
| > entitlement to VA compensation is effective ***before*** September  |
| > 15, 1981.                                                           |
+-----------------------------------------------------------------------+

Continued on next page

6\. Determining the Amount of Recoupment and Withholding, Continued

+------------+---------------------------------------------------------+
| #          | > Calculate the amount of Federal income tax withheld   |
| #### d. Ca | > from the gross amount of readjustment and separation  |
| lculating  | > pay granted after September 30, 1996, by using the    |
| the Federa | > flat tax rate for supplemental wages.                 |
| l Income T |                                                         |
| ax Withhol | -   The gross (pre-tax) amount normally has to be       |
| ding for R |     recouped from readjustment or separation payments   |
| eadjustmen |     received on or before September 30, 1996.           |
| t and Sepa |                                                         |
| ration Pay | -   The net (post-tax) amount, unless otherwise         |
|            |     specifically stated elsewhere, is the amount that   |
|            |     normally has to be recouped from readjustment or    |
|            |     separation payments received after September 30,    |
|            |     1996.                                               |
|            |                                                         |
|            |     Use the table below to determine the flat tax rate  |
|            |     in effect on the date the readjustment or           |
|            |     separation pay was issued:                          |
|            |                                                         |
|            |     ***Note***: The current flat tax rate for           |
|            |     supplemental wages can be found in [*IRS            |
|            |     Publication 15, (Circular E) Employer's Tax         |
|            |     Guide*](http://www.irs.gov/pub/irs-pdf/p15.pdf).    |
+------------+---------------------------------------------------------+

  ----------------------------------- -----------------------------------
  Effective Date                      Flat Tax Rate

  October 1, 1996                     28 percent

  August 7, 2001                      27.5 percent

  January 1, 2002                     27 percent

  May 27, 2003                        25 percent

  January 1, 2005                     27 percent

  January 1, 2006                     25 percent
  ----------------------------------- -----------------------------------

Continued on next page

6\. Determining the Amount of Recoupment and Withholding, Continued

+------------+---------------------------------------------------------+
| #####      | > A veteran who received separation or readjustment pay |
| e. Handlin | > may become entitled to retirement pay *after*         |
| g Recoupme | > receiving separation or readjustment pay. In this     |
| nt of Sepa | > event, the separation or readjustment pay is recouped |
| ration or  | > from the veteran's military retirement pay.           |
| Readjustme | >                                                       |
| nt Pay by  | > Follow the steps in the table below to recoup any     |
| Both VA an | > amount of separation or readjustment pay that is now  |
| d Service  | > subject to recoupment from service retirement pay.    |
| Department |                                                         |
+------------+---------------------------------------------------------+

+-------+--------------------------------------------------------------+
| Step  | Action                                                       |
+-------+--------------------------------------------------------------+
| 1     | Ask the service department to confirm if it is recouping     |
|       | either the separation or readjustment pay.                   |
+-------+--------------------------------------------------------------+
| 2     | -   Verify the amount the service department is recouping,   |
|       |     and                                                      |
|       |                                                              |
|       | -   give consideration only to the amount actually recouped. |
|       |                                                              |
|       | ***Example***: Separation pay equals \$30,000 but the        |
|       | service department is only recouping \$16,000. VA must       |
|       | recoup \$14,000.                                             |
|       |                                                              |
|       | ***Note***: Determine the rate of Federal income tax         |
|       | withholding, if any, according to M21-1MR, Part III, Subpart |
|       | v, 4.B.6.c.                                                  |
+-------+--------------------------------------------------------------+
| 3     | If the service department is recouping the separation or     |
|       | readjustment pay                                             |
|       |                                                              |
|       | -   adjust the veteran's compensation award, and             |
|       |                                                              |
|       | -   repay any amounts previously recouped by VA that are now |
|       |     being recouped from military retirement pay.             |
+-------+--------------------------------------------------------------+

+-----------------------------------------------------------------------+
| > ***Note***: If recoupment of prior military payments is at issue,   |
| > but                                                                 |
|                                                                       |
| -   readjustment or separation pay was paid for an earlier period of  |
|     service, and                                                      |
|                                                                       |
| -   VA compensation is paid only for disabilities incurred in a       |
|     separate, subsequent period of service,                           |
|                                                                       |
| > recoupment from VA benefits is not required.                        |
| >                                                                     |
| > ***Reference***: For more information on determining the monthly    |
| > withholding for combined disabilities, see M21-1MR, Part III,       |
| > Subpart v, 4.B.6.h.                                                 |
+-----------------------------------------------------------------------+

Continued on next page

6\. Determining the Amount of Recoupment and Withholding, Continued

+------------+---------------------------------------------------------+
| ##### f    | > Do *not* retroactively adjust an offset or recoupment |
| . Handling | > award made under former rules, to provide for a       |
|  Changes i | > recoupment or withholding under the provisions of     |
| n Offset o |                                                         |
| r Recoupme | -   M21-1MR, Part III, Subpart v, 4.B.6                 |
| nt Methods |                                                         |
|            | -   M21-1MR, Part III, Subpart v, 4.B.7, or             |
|            |                                                         |
|            | -   M21-1MR, Part III, Subpart v, 4.B.8.                |
|            |                                                         |
|            | > Authorize adjustments to change the method of offset  |
|            | > or recoupment                                         |
|            |                                                         |
|            | -   prospectively from the date of the last payment,    |
|            |     and                                                 |
|            |                                                         |
|            | -   at the request of the veteran or his/her            |
|            |     representative.                                     |
|            |                                                         |
|            | > ***Note***: VA cannot apportion any part of benefits  |
|            | > that are currently being offset or recouped under any |
|            | > of the following provisions:                          |
|            |                                                         |
|            | -   readjustment pay                                    |
|            |                                                         |
|            | -   separation pay under [10                            |
|            |     U.S.C.1174](http://assembler.law.cornell.edu        |
|            | /uscode/html/uscode10/usc_sec_10_00001174----000-.html) |
|            |     or [10 U.S.C.                                       |
|            |     1174a](http://assembler.law.cornell.edu             |
|            | /uscode/html/uscode10/usc_sec_10_00001174---a000-.html) |
|            |                                                         |
|            | -   severance pay, or                                   |
|            |                                                         |
|            | -   disability benefits under [38 U.S.C.                |
|            |     1151](http://assembler.law.cornell.edu/             |
|            | uscode/html/uscode38/usc_sec_38_00001151----000-.html). |
|            |                                                         |
|            | > ***Reference***: For more information on the          |
|            | > procedures to follow under [38 U.S.C.                 |
|            | > 1151](http://assembler.law.cornell.edu/               |
|            | uscode/html/uscode38/usc_sec_38_00001151----000-.html), |
|            | > see M21-1MR, Part IV, Subpart ii, 2.G.33.a or         |
|            | > M21-1MR, Part IV, Subpart ii, 3.D.11.a.               |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| ##### g.   | > When entitlement to compensation is based solely on   |
| Withholdin | > service *prior* to receipt of readjustment or         |
| g Compensa | > separation pay under [10 U.S.C.                       |
| tion Recei | > 1174](http://assembler.law.cornell.edu                |
| ved for Se | /uscode/html/uscode10/usc_sec_10_00001174----000-.html) |
| rvice Prio | > and recoupment is required under [38 CFR              |
| r to Readj | > 3.700](http://w                                       |
| ustment or | ww.warms.vba.va.gov/regs/38CFR/BOOKB/PART3/S3_700.DOC), |
|  Separatio | > withhold the following until the required amount has  |
| n Payments | > been recouped:                                        |
|            |                                                         |
|            | -   the full amount of compensation                     |
|            |                                                         |
|            | -   additional amounts for dependents, and              |
|            |                                                         |
|            | -   special monthly compensation (SMC), but *not* Medal |
|            |     of Honor pension.                                   |
|            |                                                         |
|            | > ***Reference***: For more information on the required |
|            | > recoupment amount, see M21-1MR, Part III, Subpart v,  |
|            | > 4.B.6.c.                                              |
+------------+---------------------------------------------------------+

Continued on next page

6\. Determining the Amount of Recoupment and Withholding, Continued

+------------+---------------------------------------------------------+
| ####       | > A veteran may have combined disabilities with one or  |
| # h. Withh | > more attributable to                                  |
| olding Com |                                                         |
| pensation  | -   service *prior* to receipt of readjustment pay or   |
| Received f |     separation pay under [10 U.S.C.                     |
| or Service |     1174](http://assembler.law.cornell.edu/             |
|  Prior and | uscode/html/uscode10/usc_sec_10_00001174----000-.html), |
|  Subsequen |     and                                                 |
| t to Readj |                                                         |
| ustment or | -   subsequent service.                                 |
|  Separatio |                                                         |
| n Payments | > In this event, do *not* reduce the compensation       |
|            | > payable for the service-connected (SC) disability     |
|            | > resulting from a subsequent period of service for the |
|            | > purpose of offsetting readjustment or separation pay. |
|            | >                                                       |
|            | > ***Example***: A veteran has a combined evaluation    |
|            | > total of 40 percent based on                          |
|            |                                                         |
|            | -   one disability, attributed to a period of service   |
|            |     for which he/she received separation pay under [10  |
|            |     U.S.C.                                              |
|            |     1174](http://assembler.law.cornell.edu/             |
|            | uscode/html/uscode10/usc_sec_10_00001174----000-.html), |
|            |     evaluated as 30 percent disabling, and              |
|            |                                                         |
|            | -   another disability, attributed to a subsequent      |
|            |     period of service, evaluated as 20 percent          |
|            |     disabling.                                          |
|            |                                                         |
|            | > In this case                                          |
|            |                                                         |
|            | -   pay the veteran the amount for the 20 percent       |
|            |     disability, and                                     |
|            |                                                         |
|            | -   withhold the remaining amount until an amount equal |
|            |     to the full amount of separation pay received under |
|            |     [10 U.S.C.                                          |
|            |     1174](http://assembler.law.cornell.edu              |
|            | /uscode/html/uscode10/usc_sec_10_00001174----000-.html) |
|            |     has been recouped.                                  |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| ##         | > Special procedures exist for recouping and            |
| ### i. Spe | > withholding disability severance pay, SSB, and VSI.   |
| cial Withh | >                                                       |
| olding Pro | > For information on the recoupment and withholding     |
| cedures fo | > procedures for                                        |
| r Disabili |                                                         |
| ty Severan | -   disability severance pay, see M21-1MR, Part III,    |
| ce Pay, SS |     Subpart v, 4.B.7, and                               |
| B, and VSI |                                                         |
|            | -   SSB and VSI, see M21-1MR, Part III, Subpart v,      |
|            |     4.B.8.                                              |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| ###        | > When non-disability severance was paid and VA         |
| ## j. With | > compensation is effective on or after September 15,   |
| holding fo | > 1981, withhold payment of VA compensation until the   |
| r Non-disa | > amount of non-disability severance pay has been       |
| bility Sev | > recouped. The total amount of non-disability          |
| erance Pay | > severance pay is subject to withholding, adjusted for |
|            | > income taxes as described in M21-1MR, Part III,       |
|            | > Subpart v, 4.B.6.d.                                   |
+------------+---------------------------------------------------------+

#### 7. Recoupment and Withholding Procedures for Severance Pay

+------------+---------------------------------------------------------+
| ##### In   | > Awards of disability compensation are subject to      |
| troduction | > recoupment of severance pay.                          |
|            | >                                                       |
|            | > This topic contains information on                    |
|            |                                                         |
|            | -   the importance of a Physical Evaluation Board       |
|            |     report                                              |
|            |                                                         |
|            | -   recoupment amount for severance pay                 |
|            |                                                         |
|            | -   withholding amounts of original awards and examples |
|            |     of                                                  |
|            |                                                         |
|            | ```{=html}                                              |
|            | <!-- -->                                                |
|            | ```                                                     |
|            | -   an original award with no withholding               |
|            |                                                         |
|            | -   a withholding from an original award                |
|            |                                                         |
|            | -   a withholding for 0 percent disability, and         |
|            |                                                         |
|            | -   a withholding without initial determination of      |
|            |     degree of disability                                |
|            |                                                         |
|            | ```{=html}                                              |
|            | <!-- -->                                                |
|            | ```                                                     |
|            | -   withholding amounts for changes in disability       |
|            |     evaluations                                         |
|            |                                                         |
|            | -   withholding amounts for increases with two or more  |
|            |     severance pay disabilities with                     |
|            |                                                         |
|            | ```{=html}                                              |
|            | <!-- -->                                                |
|            | ```                                                     |
|            | -   example; withholding amounts for increases in two   |
|            |     or more disabilities and no change in combined      |
|            |     evaluation                                          |
|            |                                                         |
|            | -   example; withholding amounts for increases in two   |
|            |     or more disabilities and an increase in combined    |
|            |     evaluation                                          |
|            |                                                         |
|            | -   example; temporary total evaluation for severance   |
|            |     disability                                          |
|            |                                                         |
|            | -   example; temporary total evaluation for             |
|            |     non-severance disability, and                       |
|            |                                                         |
|            | ```{=html}                                              |
|            | <!-- -->                                                |
|            | ```                                                     |
|            | -   handling changes in offset or recoupment methods.   |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| ##### C    | > January 12, 2007                                      |
| hange Date |                                                         |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| #          | > The ***Physical Evaluation Board*** (***PEB***)       |
| #### a. Th | > ***report*** indicates the disability or disabilities |
| e Importan | > for which disability severance pay was received and   |
| ce of a Ph | > is normally included in the veteran's service medical |
| ysical Eva | > records.                                              |
| luation Bo | >                                                       |
| ard Report | > ***Reference***: For instructions on how to request a |
|            | > copy of the veteran's PEB report if it is not         |
|            | > included in the service medical records, see M21-1MR, |
|            | > Part III, Subpart iii, 2.D.23.c.                      |
+------------+---------------------------------------------------------+

Continued on next page

7\. Recoupment and Withholding Procedures for Severance Pay, Continued

+------------+---------------------------------------------------------+
| ####       | The amount of severance pay to be recouped from VA      |
| # b. Recou | compensation is described in M21-1MR, Part III, Subpart |
| pment Amou | v, 4.B.7.c. Generally, if the veteran received          |
| nt for Sev |                                                         |
| erance Pay | -   disability severance pay, then recoup the full      |
|            |     amount of the disability severance pay received     |
|            |     from compensation payable for the same disability   |
|            |     or disabilities, and                                |
|            |                                                         |
|            | -   non-disability severance pay, then recoup the       |
|            |     entire amount of severance pay from VA              |
|            |     compensation.                                       |
|            |                                                         |
|            | ***Important***:                                        |
|            |                                                         |
|            | -   The rate of recoupment should *not* be in excess of |
|            |     the rate of compensation payable for the initial    |
|            |     determination of the degree of disability assigned  |
|            |     to those disabilities, except for hospitalization   |
|            |     ([Paragraph                                         |
|            |     29](http://                                         |
|            | www.warms.vba.va.gov/regs/38CFR/BOOKC/PART4/S4_29.DOC)) |
|            |     and convalescence ([Paragraph                       |
|            |     30](http://                                         |
|            | www.warms.vba.va.gov/regs/38CFR/BOOKC/PART4/S4_30.DOC)) |
|            |     ratings. The initial determination of the degree of |
|            |     disability is the first schedular rating for that   |
|            |     disability under Subpart B of Part 4 of the CFR.    |
|            |     For example:                                        |
|            |                                                         |
|            | ```{=html}                                              |
|            | <!-- -->                                                |
|            | ```                                                     |
|            | -   If the initial disability evaluation was 20         |
|            |     percent, but the current evaluation is 30 percent,  |
|            |     the recoupment is at the 20 percent rate.           |
|            |                                                         |
|            | -   If the disability was initially evaluated as 50     |
|            |     percent, but a temporary 100 percent rate was paid  |
|            |     due to [Paragraph                                   |
|            |     29](http:/                                          |
|            | /www.warms.vba.va.gov/regs/38CFR/BOOKC/PART4/S4_29.DOC) |
|            |     or [Paragraph                                       |
|            |     30](http://                                         |
|            | www.warms.vba.va.gov/regs/38CFR/BOOKC/PART4/S4_30.DOC), |
|            |     the recoupment is at the 50 percent rate.           |
|            |                                                         |
|            | -   If the disability was initially evaluated as 0      |
|            |     percent and then a temporary 100 percent rate is    |
|            |     assigned due to [Paragraph                          |
|            |     29](http:/                                          |
|            | /www.warms.vba.va.gov/regs/38CFR/BOOKC/PART4/S4_29.DOC) |
|            |     or [Paragraph                                       |
|            |     30](http://                                         |
|            | www.warms.vba.va.gov/regs/38CFR/BOOKC/PART4/S4_30.DOC), |
|            |     there is no recoupment until the first regular      |
|            |     schedular compensable evaluation is assigned. (See  |
|            |     [38 CFR                                             |
|            |     3.700(a)(3)](http://w                               |
|            | ww.warms.vba.va.gov/regs/38CFR/BOOKB/PART3/S3_700.DOC)) |
|            |                                                         |
|            | ```{=html}                                              |
|            | <!-- -->                                                |
|            | ```                                                     |
|            | -   Prior to the initial determination of the degree of |
|            |     disability for a service-connected condition for    |
|            |     which disability severance was paid, recoup the     |
|            |     full rate of monthly compensation payable for the   |
|            |     severance-pay disability.                           |
|            |                                                         |
|            | -   *PL 96-513, Section 631* provided that when         |
|            |     entitlement to disability compensation was          |
|            |     established on or after September 15, 1981,         |
|            |                                                         |
|            | ```{=html}                                              |
|            | <!-- -->                                                |
|            | ```                                                     |
|            | -   a veteran may receive disability compensation for   |
|            |     disabilities incurred or aggravated by service      |
|            |     prior to the date of receipt of non-disability      |
|            |     severance pay, but                                  |
|            |                                                         |
|            | -   VA must recoup an amount equal to the severance pay |
|            |     from the disability compensation.                   |
+------------+---------------------------------------------------------+

Continued on next page

7\. Recoupment and Withholding Procedures for Severance Pay, Continued

+------------+---------------------------------------------------------+
| b\.        | > ***References***: For more information on             |
| Recoupment |                                                         |
| Amount for | -   severance pay, see                                  |
| Severance  |                                                         |
| Pay        | ```{=html}                                              |
| (          | <!-- -->                                                |
| continued) | ```                                                     |
|            | -   [38 CFR                                             |
|            |     3.700(a)(3)](http://w                               |
|            | ww.warms.vba.va.gov/regs/38CFR/BOOKB/PART3/S3_700.DOC), |
|            |     and                                                 |
|            |                                                         |
|            | -   Fed. Reg. September 27, 2002 (Vol. 67, No. 188)     |
|            |                                                         |
|            | ```{=html}                                              |
|            | <!-- -->                                                |
|            | ```                                                     |
|            | -   determining the total amount or balance of          |
|            |     severance pay to make the recoupment determination, |
|            |     see M21-1MR, Part III, Subpart v, 4.B.6.b, and      |
|            |                                                         |
|            | -   withholding flat tax rate for Federal income tax,   |
|            |     see                                                 |
|            |                                                         |
|            | > M21-1MR, Part III, Subpart v, 4.B.6.d.                |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| ##### c    | > Use the table below to determine the amount of        |
| . Withhold | > withholding from compensation when severance pay was  |
| ing Amount | > received.                                             |
| s of Origi | >                                                       |
| nal Awards | > ***Notes***:                                          |
|            |                                                         |
|            | -   The following table identifies the portion of VA    |
|            |     compensation from which severance pay is recouped.  |
|            |     To determine the amount of severance pay that must  |
|            |     be recouped, see M21-1, Part III, Subpart v,        |
|            |     4.B.6.c.                                            |
|            |                                                         |
|            | -   See M21-1MR, Part III, Subpart v, 4.B.6.d regarding |
|            |     adjustment of the recoupment rate to offset for     |
|            |     income taxes.                                       |
+------------+---------------------------------------------------------+

+------------+----------------+----------------------------------------+
| If         | And \...       | Then ...                               |
| w          |                |                                        |
| ithholding |                |                                        |
| for ...    |                |                                        |
+------------+----------------+----------------------------------------+
| non-       | > entitlement  | > withhold the full amount of the      |
| disability | > to           | > monthly compensation, including any  |
| severance  | > compensation | > amounts for                          |
| pay        | > is effective |                                        |
|            | > on or after  | -   dependents, and                    |
|            | > September    |                                        |
|            | > 15, 1981     | -   SMC.                               |
+------------+----------------+----------------------------------------+
| disability | > the veteran  | withhold for recoupment the amount of  |
| severance  | > received     | the monthly compensation (including    |
| pay        | > disability   | any amounts for dependents) payable    |
|            | > severance    | for the severance disabilities         |
|            | > pay for all  |                                        |
|            | > of his/her   |                                        |
|            | > compensable  |                                        |
|            | > ser          |                                        |
|            | vice-connected |                                        |
|            | > disabilities |                                        |
+------------+----------------+----------------------------------------+

Continued on next page

7\. Recoupment and Withholding Procedures for Severance Pay, Continued

  -----------------------------------------------------------------------
  c\. Withholding Amounts of Original Awards (continued)

  -----------------------------------------------------------------------

+------------+---------------+----------------------------------------+
| **If       | **And \...**  | **Then ...**                           |
| w          |               |                                        |
| ithholding |               |                                        |
| for ...**  |               |                                        |
+------------+---------------+----------------------------------------+
| disability | the veteran   | -   withhold for recoupment the amount |
| severance  | received      |     of the monthly compensation        |
| pay        | disability    |     (including any amounts for         |
|            | severance pay |     dependents) payable for the        |
|            | for some, but |     severance disabilities, and        |
|            | not all, of   |                                        |
|            | his/her       | -   pay the balance, if any, to the    |
|            | serv          |     veteran.                           |
|            | ice-connected |                                        |
|            | disabilities  | > ***Notes***:                         |
|            |               |                                        |
|            |               | -   If the balance paid to the veteran |
|            |               |     is at a rate *less* than the full  |
|            |               |     amount of monthly compensation     |
|            |               |     payable for nonseverance           |
|            |               |     disabilities, including additional |
|            |               |     amounts for dependents, withhold   |
|            |               |     only the balance remaining after   |
|            |               |     payment of the amount for the      |
|            |               |     nonseverance disabilities.         |
|            |               |                                        |
|            |               | -   If a veteran with severance and    |
|            |               |     nonseverance disabilities is rated |
|            |               |     10 percent under [38 CFR           |
|            |               |     3.324](http://www.warms.vba.va.    |
|            |               | gov/regs/38CFR/BOOKB/PART3/S3_323.DOC) |
|            |               |     based on multiple zero percent     |
|            |               |     disabilities, do *not* withhold    |
|            |               |     benefits to recoup severance pay   |
|            |               |     if one of the zero percent SC      |
|            |               |     disabilities is a severance pay    |
|            |               |     disability. A zero percent         |
|            |               |     severance pay disability alone     |
|            |               |     does *not* permit payment of       |
|            |               |     benefits.                          |
|            |               |                                        |
|            |               | -   If a veteran is entitled to SMC,   |
|            |               |     do *not* apply the SMC benefit     |
|            |               |     toward severance pay recoupment if |
|            |               |     nonseverance disabilities would    |
|            |               |     support payment of the SMC rate to |
|            |               |     which the veteran is entitled.     |
+------------+---------------+----------------------------------------+

Continued on next page

7\. Recoupment and Withholding Procedures for Severance Pay, Continued

+------------+---------------------------------------------------------+
| ##### d    | > ***Situation***: A married veteran received           |
| . Example  | > disability severance pay and has a                    |
| 1: An Orig |                                                         |
| inal Award | -   50 percent evaluation for a severance pay           |
|  With No W |     disability, and                                     |
| ithholding |                                                         |
|            | -   100 percent evaluation for an additional            |
|            |     nonseverance pay disability.                        |
|            |                                                         |
|            | > ***Result***: Do *not* recoup severance pay while the |
|            | > nonseverance pay disability is rated 100 percent.     |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| ####       | > ***Situation***: A married veteran received           |
| # e. Examp | > disability severance pay and has a combined           |
| le 2: With | > evaluation of 70 percent from a                       |
| holding Fr |                                                         |
| om an Orig | -   50 percent evaluation for a severance pay           |
| inal Award |     disability, and                                     |
|            |                                                         |
|            | -   40 percent evaluation for a nonseverance pay        |
|            |     disability.                                         |
+------------+---------------------------------------------------------+

  --------------------- ------------------------------------------------------------
                        Method 1: Subtracting Severance Disability Rate From the
                        Total Award

  \$1232.00             Total 70 percent rate as of 12/1/2006

  [\$                   Withhold the 50 percent rate including additional for
  781.00]{.underline}   dependent

  \$ 451.00             Pay to veteran

                        

                        Method 2: Subtracting Nonseverance Disability Rate From the
                        Total Award

  \$1232.00             Total 70 percent rate as of 12/1/2006

  [\$                   Pay the 40 percent rate including additional for dependent
  556.00]{.underline}   

  \$ 676.00             Withhold from veteran
  --------------------- ------------------------------------------------------------

+-----------------------------------------------------------------------+
| > ***Result***: Use Method 2 in this situation and withhold \$676,    |
| > because it allows the greater award to the veteran.                 |
+-----------------------------------------------------------------------+

+-----------------------------------------------------------------------+
| > ***Note***: If a total evaluation for individual unemployability    |
| > (IU) were subsequently awarded, based on the situation described in |
| > Method 2, the withholding would still be \$676. The amount of       |
| > withholding is calculated from the actual percentages assigned to   |
| > the severance pay disabilities, not the 100 percent rate for IU.    |
+-----------------------------------------------------------------------+

+------------+---------------------------------------------------------+
| ##### f    | > **Situation**: A service-connected severance          |
| . Example  | > disability is evaluated at 0 percent.                 |
| 3: Withhol | >                                                       |
| ding For 0 | > **Result**: Pay full VA compensation for any          |
|  Percent D | > non-severance pay disabilities. Do not withhold       |
| isability  | > anything for the non-compensable severance pay        |
|            | > disability.                                           |
+------------+---------------------------------------------------------+

Continued on next page

7\. Recoupment and Withholding Procedures for Severance Pay, Continued

+------------+---------------------------------------------------------+
| #####      | > **Situation**: The Army issued disability severance   |
|  g. Exampl | > pay to a veteran with a combat-related head injury.   |
| e 4: Withh | > The veteran required continuing hospitalization after |
| olding Wit | > separation and the Rating Activity assigned a 100     |
| hout Initi | > percent prestabilization evaluation under Paragraph   |
| al Determi | > 28 for the head injury. The Rating Activity did not   |
| nation of  | > assign a regular evaluation for the condition.        |
| Degree of  | >                                                       |
| Disability | > **Result**: Withhold VA compensation at the 100       |
|            | > percent rate to recoup the disability severance pay.  |
|            | > If the Rating Activity assigns a regular percentage   |
|            | > evaluation after the prestabilization period, the     |
|            | > withholding then would be based on the regular degree |
|            | > of disability assigned for the severance disability.  |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| ##         | > Use the table below to determine the amount of        |
| ### h. Wit | > withholding for increases and decreases in disability |
| hholding A | > evaluations.                                          |
| mounts for |                                                         |
|  Increases |                                                         |
|  and Decre |                                                         |
| ases in Di |                                                         |
| sability E |                                                         |
| valuations |                                                         |
+------------+---------------------------------------------------------+

+----------------+-----------------------------------------------------+
| If the         | Then ...                                            |
| disability     |                                                     |
| evaluation is  |                                                     |
| ...            |                                                     |
+----------------+-----------------------------------------------------+
| increased      | withhold an amount not exceeding the rate that      |
|                | would be paid based on the initial compensation     |
|                | evaluation of the disability.                       |
|                |                                                     |
|                | ***Exception***: If the initial evaluation was a    |
|                | convalescent or temporary rating, the subsequent    |
|                | assigned schedular evaluation becomes the initial   |
|                | compensation evaluation.                            |
|                |                                                     |
|                | ***Note***: Because current rates payable are       |
|                | applicable, only legislative increases or increases |
|                | due to the addition of dependents would warrant an  |
|                | increase in the amount to be withheld.              |
+----------------+-----------------------------------------------------+
| decreased      | use the amount of compensation payable under the    |
|                | new evaluation to compute the new recoupment        |
|                | amount.                                             |
+----------------+-----------------------------------------------------+

+-----------------------------------------------------------------------+
| > ***Note***: In all cases in which entitlement to VA compensation    |
| > was established prior to September 15, 1981, the veteran must       |
| > receive the full amount payable for any nonseverance disabilities.  |
+-----------------------------------------------------------------------+

Continued on next page

7\. Recoupment and Withholding Procedures for Severance Pay, Continued

+------------+---------------------------------------------------------+
| ##         | > When there are two or more disabilities, compare the  |
| ### i. Wit | > evaluations of the initial and current combined       |
| hholding A | > degrees of the disabilities. If the combined degree   |
| mounts for | > of the severance pay disabilities for the initial     |
|  Increases | > evaluation is less than the current combined degree   |
|  With Two  | > for the same disabilities                             |
| or More Di |                                                         |
| sabilities | -   use the initial combined degree to establish the    |
|            |     amount to be withheld, and                          |
|            |                                                         |
|            | -   do *not* compare the initial and current levels of  |
|            |     each individual severance pay disability.           |
|            |                                                         |
|            | > ***Note***: When a case is routinely encountered in   |
|            | > which an amount is withheld in excess of the rate     |
|            | > that should be recouped, reduce the withholding       |
|            | > prospectively as of the first of the month following  |
|            | > the month in which the amended award is approved.     |
|            | >                                                       |
|            | > Use the examples in the table below to establish the  |
|            | > amount to be withheld for two or more severance pay   |
|            | > disabilities.                                         |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| ##### j    | > ***Initial Evaluation of Disabilities***:             |
| . Example  |                                                         |
| 1: Withhol | -   Disability A: 20 percent                            |
| ding Amoun |                                                         |
| ts for Inc | -   Disability B: 10 percent                            |
| rease in T |                                                         |
| wo or More | -   Disability C: 10 percent                            |
|  Disabilit |                                                         |
| ies and No | -   Combined: 40 percent                                |
|  Change in |                                                         |
|  Combined  | > ***Current Evaluation of Disabilities***:             |
| Evaluation |                                                         |
|            | -   Disability A: 10 percent                            |
|            |                                                         |
|            | -   Disability B: 30 percent                            |
|            |                                                         |
|            | -   Disability C: 0 percent                             |
|            |                                                         |
|            | -   Combined: 40 percent                                |
|            |                                                         |
|            | > ***Result***: Withholding for the disabilities will   |
|            | > be at the 40 percent rate.                            |
+------------+---------------------------------------------------------+

Continued on next page

7\. Recoupment and Withholding Procedures for Severance Pay, Continued

+------------+---------------------------------------------------------+
| #####      | > ***Initial Evaluation of Disabilities***:             |
| k. Example |                                                         |
|  2: Withho | -   Disability A: 20 percent                            |
| lding Amou |                                                         |
| nts for In | -   Disability B: 10 percent                            |
| crease in  |                                                         |
| Two or Mor | -   Disability C: 10 percent                            |
| e Disabili |                                                         |
| ties and I | -   Combined: 40 percent                                |
| ncrease in |                                                         |
|  Combined  | > ***Current Evaluation of Disabilities***:             |
| Evaluation |                                                         |
|            | -   Disability A: 10 percent                            |
|            |                                                         |
|            | -   Disability B: 30 percent                            |
|            |                                                         |
|            | -   Disability C: 20 percent                            |
|            |                                                         |
|            | -   Combined: 50 percent                                |
|            |                                                         |
|            | > ***Result***: Withholding for the disabilities will   |
|            | > be at the 40 percent rate.                            |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| #          | > **Situation**: A severance pay disability was         |
| #### l. Ex | > service-connected at 10 percent. A non-severance pay  |
| ample 3: T | > disability was service-connected at 40 percent.       |
| emporary T | > Paragraph 29 is assigned for the 10 percent           |
| otal Evalu | > disability.                                           |
| ation for  | >                                                       |
| Severance  | > **Result**: Withhold for the initial 10 percent and   |
| Disability | > pay the balance to the veteran.                       |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| #####      | > **Situation**: A severance pay disability was         |
|  m. Exampl | > service-connected at 10 percent. A non-severance pay  |
| e 4: Tempo | > disability was service-connected at 40 percent.       |
| rary Total | > Paragraph 29 is assigned for the 40 percent           |
|  Evaluatio | > disability.                                           |
| n for Non- | >                                                       |
| severance  | > **Result**: Pay the 100 percent rate for the total    |
| Disability | > evaluation of the non-severance disability.           |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| ##### n    | > For information on handling changes in offset or      |
| . Handling | > recoupment methods, see M21-1MR, Part III, Subpart v, |
|  Changes i | > 4.B.6.f.                                              |
| n Offset o |                                                         |
| r Recoupme |                                                         |
| nt Methods |                                                         |
+------------+---------------------------------------------------------+

#### 8. Recoupment and Withholding Procedures for Special Separation Benefit (SSB) and Voluntary Separation Incentive (VSI) 

+------------+---------------------------------------------------------+
| ##### In   | > 38 CFR 3.700 prohibits the duplication of benefit     |
| troduction | > payments when a veteran receives SSB under 10 U.S.C.  |
|            | > 1174a or VSI under 10 U.S.C. 1175.                    |
|            | >                                                       |
|            | > This topic contains general information on SSB        |
|            | > benefits under 10 U.S.C. 1174a and VSI benefits under |
|            | > 10 U.S.C. 1175, and information on                    |
|            |                                                         |
|            | -   SSB under 10 U.S.C. 1174a and VSI under 10 U.S.C.   |
|            |     1175                                                |
|            |                                                         |
|            | -   payment of SSB and VSI                              |
|            |                                                         |
|            | -   policy: offset or recoupment of SSB and VSI         |
|            |                                                         |
|            | -   identifying SSB and VSI recipients                  |
|            |                                                         |
|            | ```{=html}                                              |
|            | <!-- -->                                                |
|            | ```                                                     |
|            | -   with Department of Defense (DoD) separation codes,  |
|            |     and                                                 |
|            |                                                         |
|            | -   in Veterans Assistance Discharge System (VADS)      |
|            |                                                         |
|            | ```{=html}                                              |
|            | <!-- -->                                                |
|            | ```                                                     |
|            | -   recouping SSB and withholding benefits              |
|            |                                                         |
|            | -   the process for recouping VSI and withholding       |
|            |     benefits, and                                       |
|            |                                                         |
|            | -   handling changes in offset or recoupment methods.   |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| ##### C    | > January 12, 2007                                      |
| hange Date |                                                         |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| ###        | > *PL 102-190, Sections 661 and 662*, enacted December  |
| ## a. SSB  | > 5, 1991, added SSB under [10 U.S.C.                   |
| Under 10 U | > 1174a](http://assembler.law.cornell.edu               |
| .S.C. 1174 | /uscode/html/uscode10/usc_sec_10_00001174---a000-.html) |
| a and VSI  | > and VSI under [10 U.S.C.                              |
| Under 10 U | > 1175](http://assembler.law.cornell.edu                |
| .S.C. 1175 | /uscode/html/uscode10/usc_sec_10_00001175----000-.html) |
|            | > to facilitate the downsizing of the armed forces.     |
|            | > These two exit bonus incentive programs are used to   |
|            | > encourage service members who would otherwise face    |
|            | > possible involuntary separation or denial of          |
|            | > reenlistment to separate voluntarily.                 |
|            | >                                                       |
|            | > To qualify for SSB or VSI, the veteran must           |
|            |                                                         |
|            | -   have served                                         |
|            |                                                         |
|            | ```{=html}                                              |
|            | <!-- -->                                                |
|            | ```                                                     |
|            | -   on active duty for more than six years but fewer    |
|            |     than 20 years as of December 5, 1991, and           |
|            |                                                         |
|            | -   at least five years of continuous active duty       |
|            |     immediately before separation                       |
|            |                                                         |
|            | ```{=html}                                              |
|            | <!-- -->                                                |
|            | ```                                                     |
|            | -   agree to serve in the Ready Reserve, and            |
|            |                                                         |
|            | -   separate on or before September 30, 1995.           |
+------------+---------------------------------------------------------+

Continued on next page

8\. Recoupment and Withholding Procedures for Special Separation Benefit
(SSB) and Voluntary Separation Incentive (VSI), Continued

+------------+---------------------------------------------------------+
| #          | > The table below describes the payment of SSB and VSI  |
| #### b. Pa | > bonuses.                                              |
| yment of S |                                                         |
| SB and VSI |                                                         |
+------------+---------------------------------------------------------+

+----------------+-----------------------------------------------------+
| Bonus          | Payment Description                                 |
| Incentive      |                                                     |
| Program        |                                                     |
+----------------+-----------------------------------------------------+
| SSB            | The serviceperson is paid, upon discharge, a lump   |
|                | sum payment equal to 15 percent of his/her annual   |
|                | basic pay, multiplied by years of active service.   |
+----------------+-----------------------------------------------------+
| VSI            | > The serviceperson is paid annual installments     |
|                | > equal to 2.5 percent of his/her basic pay,        |
|                | > multiplied by years of service. Payments commence |
|                | > upon discharge and are paid by the Department of  |
|                | > Defense (DoD) on each anniversary date of         |
|                | > discharge thereafter.                             |
|                |                                                     |
|                | ***Note***: In general, the total number of         |
|                | payments equals twice the number of years of active |
|                | service, provided the veteran continues to serve in |
|                | a reserve unit for the duration of the payments.    |
+----------------+-----------------------------------------------------+

+------------+---------------------------------------------------------+
| ##         | > Regardless of which bonus incentive program the       |
| ### c. Pol | > service person selected, if he/she is entitled to     |
| icy: Offse | > receive VA compensation for the same period of        |
| t or Recou | > service, either the VA compensation or DoD bonus must |
| pment of S | > be offset or recouped to prevent concurrent receipt   |
| SB and VSI | > of benefits.                                          |
+------------+---------------------------------------------------------+

Continued on next page

8\. Recoupment and Withholding Procedures for Special Separation Benefit
(SSB) and Voluntary Separation Incentive (VSI), Continued

+------------+---------------------------------------------------------+
| ##### d.   | > To identify service persons who elected SSB or VSI,   |
| Identifyin | > DoD created several new separation and narrative      |
| g SSB and  | > reason codes for use on *DD Form 214, Certificate of  |
| VSI Recipi | > Release/Discharge from Active Duty*.                  |
| ents With  | >                                                       |
| DoD Separa | > The table below describes these codes and provides    |
| tion Codes | > examples of each.                                     |
+------------+---------------------------------------------------------+

+----------------+-----------------+----------------------------------+
| Code(s)        | Description     | Examples                         |
+----------------+-----------------+----------------------------------+
| Block          | > Indicates     | -   SSB--\$27,500 paid lump sum. |
| #18--Remarks   | > either the    |                                  |
|                |                 | -   VSI--\$4,310 annually for 12 |
|                | -   lump sum    |     years.                       |
|                |     payment for |                                  |
|                |     SSB, or     |                                  |
|                |                 |                                  |
|                | -   VSI amount  |                                  |
|                |     and the     |                                  |
|                |     number of   |                                  |
|                |     years       |                                  |
|                |     payment is  |                                  |
|                |     to          |                                  |
|                |     continue.   |                                  |
+----------------+-----------------+----------------------------------+

Continued on next page

8\. Recoupment and Withholding Procedures for Special Separation Benefit
(SSB) and Voluntary Separation Incentive (VSI), Continued

  -----------------------------------------------------------------------
  d\. Identifying SSB and VSI Recipients With DoD Separation Codes
  (continued)

  -----------------------------------------------------------------------

+----------------+-----------------+----------------------------------+
| Code(s)        | Description     | Examples                         |
+----------------+-----------------+----------------------------------+
| -   Block      | > Indicates the | > ***SSB***: Separation Reason:  |
|     #          | > separation    | > CB--Early Release Program--SSB |
| 26--Separation | > code and      |                                  |
|     Code       | > reason for    | -   Officers: FCB--Voluntary     |
|                | > separation.   |     Resignation for Early        |
| -   Block      |                 |     Release Program--SSB         |
|                |                 |                                  |
| #28--Narrative |                 | -   Officers and Enlisted:       |
|     Reason     |                 |                                  |
|     Code       |                 | ```{=html}                       |
|                |                 | <!-- -->                         |
|                |                 | ```                              |
|                |                 | -   KCB--Voluntary Discharge for |
|                |                 |     Early Release Program--SSB   |
|                |                 |                                  |
|                |                 | -   MCB--Voluntary               |
|                |                 |     Release/Transfer to Another  |
|                |                 |     Service Component for Early  |
|                |                 |     Release Program--SSB         |
|                |                 |                                  |
|                |                 | > ***VSI***: Separation Reason:  |
|                |                 | > CA--Early Release Program--VSI |
|                |                 |                                  |
|                |                 | -   Officers: FCA--Voluntary     |
|                |                 |     Resignation, Other, for      |
|                |                 |     Early Release Program--VSI   |
|                |                 |                                  |
|                |                 | -   Officers and Enlisted:       |
|                |                 |                                  |
|                |                 | ```{=html}                       |
|                |                 | <!-- -->                         |
|                |                 | ```                              |
|                |                 | -   KCA--Voluntary Discharge for |
|                |                 |     Early Release Program--VSI   |
|                |                 |                                  |
|                |                 | -   MCA--Voluntary               |
|                |                 |     Release/Transfer to Another  |
|                |                 |     Service Component for Early  |
|                |                 |     Release Program--VSI         |
+----------------+-----------------+----------------------------------+

+-----------------------------------------------------------------------+
| > ***Note***: Service departments have not used these codes and       |
| > narrative reasons consistently.                                     |
+-----------------------------------------------------------------------+

Continued on next page

8\. Recoupment and Withholding Procedures for Special Separation Benefit
(SSB) and Voluntary Separation Incentive (VSI), Continued

+------------+---------------------------------------------------------+
| #          | > The Austin Data Processing Center (DPC)               |
| #### e. Id |                                                         |
| entifying  | -   enters information from *DD Form 214* for recently  |
| SSB and VS |     discharged veterans                                 |
| I Recipien |                                                         |
| ts in VADS | -   creates a Veterans Assistance Discharge System      |
|            |     (VADS) record, and                                  |
|            |                                                         |
|            | -   enters any SSB payment in the SEPARATION PAY field  |
|            |     of VA's electronic records                          |
|            |                                                         |
|            | > ***Result***: If a pending issue file (PIF) is        |
|            | > subsequently established, the VSR should ensure that  |
|            | > the verified amount of the SSB or VSI is entered in   |
|            | > the SEPARATION PAY field of the pending award.        |
|            | >                                                       |
|            | > ***Note***: VSI information is *not* entered into a   |
|            | > VADS record since DoD is responsible for offset.      |
|            | >                                                       |
|            | > ***Reference***: For more information on VADS, see    |
|            | > the *SHARE User's Guide*.                             |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| ##### f    | > When a veteran elects to receive SSB under [10 U.S.C. |
| . Recoupin | > 1174a](http://assembler.law.cornell.edu               |
| g SSB and  | /uscode/html/uscode10/usc_sec_10_00001174---a000-.html) |
| Withholdin | > and subsequently establishes entitlement to receive   |
| g Benefits | > VA compensation for the same period of service,       |
|            | > recoup the SSB payment from the compensation benefit  |
|            | > by                                                    |
|            |                                                         |
|            | -   withholding the amount of post-tax SSB received,    |
|            |     regardless of when SSB was received, and            |
|            |                                                         |
|            | -   withholding all VA compensation until the total     |
|            |     amount of the SSB payment is recouped.              |
|            |                                                         |
|            | > ***Important***: [*Public Law                         |
|            | > 105-17                                                |
|            | 8*](http://www.access.gpo.gov/nara/publaw/105publ.html) |
|            | > provides for after-tax recovery of SSB paid on or     |
|            | > after December 5, 1991.                               |
|            | >                                                       |
|            | > ***Notes***:                                          |
|            |                                                         |
|            | -   Requests for adjustment of an "after tax" SSB       |
|            |     recoupment balance must be supported by adequate    |
|            |     documentation showing the amount that was withheld  |
|            |     for Federal income taxes was different from net     |
|            |     amount used based on the flat tax amount calculated |
|            |     by, or previously reported to VA.                   |
|            |                                                         |
|            | -   Do *not* make any deductions from disability        |
|            |     compensation for SSB received if the veteran        |
|            |     subsequently incurs or aggravates a disability      |
|            |     during a later period of active duty which is the   |
|            |     basis for VA compensation.                          |
+------------+---------------------------------------------------------+

Continued on next page

8\. Recoupment and Withholding Procedures for Special Separation Benefit
(SSB) and Voluntary Separation Incentive (VSI), Continued

+------------+---------------------------------------------------------+
| ##### g.   | > When a veteran elects to receive annual VSI annuity   |
| Process fo | > payments under [10 U.S.C.                             |
| r Recoupin | > 1175](http://assembler.law.cornell.edu                |
| g VSI and  | /uscode/html/uscode10/usc_sec_10_00001175----000-.html) |
| Withholdin | > and subsequently establishes entitlement to receive   |
| g Benefits | > VA compensation based on the same period of service,  |
|            | > DoD offsets the VSI benefit.                          |
|            | >                                                       |
|            | > DoD deducts the annual VSI benefit to offset the      |
|            | > amount of VA compensation payable. DoD does not make  |
|            | > deductions for disability compensation which is based |
|            | > on an earlier period of service than that for which   |
|            | > the VSI is payable.                                   |
|            | >                                                       |
|            | > ***Important***: VA does *not* implement any special  |
|            | > procedures, such as using a special law (SL) code or  |
|            | > notifying DoD, when processing VSI/compensation       |
|            | > cases.                                                |
|            | >                                                       |
|            | > ***Note***: The Defense Accounting and Finance        |
|            | > Service (DFAS), located in Cleveland, Ohio            |
|            |                                                         |
|            | -   administers all VSI payments regardless of the      |
|            |     branch of service, and                              |
|            |                                                         |
|            | -   offsets VSI payments based upon data passed from    |
|            |     the Hines Information Technology Center (ITC) to    |
|            |     the military finance center.                        |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| ##### h    | > For information on handling changes in offset or      |
| . Handling | > recoupment methods, see M21-1MR, Part III, Subpart v, |
|  Changes i | > 4.B.6.f.                                              |
| n Offset o |                                                         |
| r Recoupme |                                                         |
| nt Methods |                                                         |
+------------+---------------------------------------------------------+

#### 9. Preparing Awards and Notifying the Beneficiary

+------------+---------------------------------------------------------+
| ##### In   | > There are specific procedures for preparing an award  |
| troduction | > subject to recoupment of readjustment, separation,    |
|            | > and/or severance pay and notifying the beneficiary.   |
|            | >                                                       |
|            | > This topic contains information on                    |
|            |                                                         |
|            | -   effective date of awards subject to recoupment      |
|            |                                                         |
|            | -   entering award data                                 |
|            |                                                         |
|            | -   display of 100 percent recoupment on BIRLS MSC      |
|            |     screen                                              |
|            |                                                         |
|            | -   75 percent recoupment of readjustment pay           |
|            |                                                         |
|            | -   changing recoupment amounts on the award            |
|            |                                                         |
|            | -   making a change to the recoupment amount in the     |
|            |     master record, and                                  |
|            |                                                         |
|            | -   providing                                           |
|            |                                                         |
|            | ```{=html}                                              |
|            | <!-- -->                                                |
|            | ```                                                     |
|            | -   award notification, and                             |
|            |                                                         |
|            | -   notification of withheld award payment.             |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| ##### C    | > January 12, 2007                                      |
| hange Date |                                                         |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| #####      | > The effective date of compensation awards subject to  |
|  a. Effect | > recoupment of readjustment, separation, or disability |
| ive Date o | > severance pay is as follows:                          |
| f Awards S |                                                         |
| ubject to  |                                                         |
| Recoupment |                                                         |
+------------+---------------------------------------------------------+

  ------------------------------ ----------------------------------------
  Type of Award                  Effective Date of Award

  Original or reopened award --  The date eligibility to compensation is
  not running                    established.

  Running award                  The date of last payment, regardless of
                                 the date readjustment, separation, or
                                 disability severance pay was received.
                                 See M21-1MR, Part III, Subpart v,
                                 4.B.6.f.
  ------------------------------ ----------------------------------------

Continued on next page

9\. Preparing Awards and Notifying the Beneficiary, Continued

+------------+---------------------------------------------------------+
| ##### b.   | > Follow the steps in the table below when entering     |
|  Entering  | > award data.                                           |
| Award Data |                                                         |
+------------+---------------------------------------------------------+

+-------+--------------------------------------------------------------+
| Step  | Action                                                       |
+-------+--------------------------------------------------------------+
| 1     | -   Compute the amounts to be paid and recouped, as          |
|       |     required, for each award line to provide for all periods |
|       |     of entitlement, and                                      |
|       |                                                              |
|       | -   show continuous withholding for future rate changes, if  |
|       |     any, without any attempt to compute or reflect the       |
|       |     future date on which the total amount will be recouped.  |
|       |                                                              |
|       | > ***Result***: The system maintains a running balance and   |
|       | > automatically adjusts to pay the full-entitlement rate     |
|       | > when recoupment is complete.                               |
+-------+--------------------------------------------------------------+
| 2     | > Enter the                                                  |
|       |                                                              |
|       | -   applicable type of withholding, such as                  |
|       |                                                              |
|       | ```{=html}                                                   |
|       | <!-- -->                                                     |
|       | ```                                                          |
|       | -   readjustment                                             |
|       |                                                              |
|       | -   separation, or                                           |
|       |                                                              |
|       | -   disability severance, and                                |
|       |                                                              |
|       | ```{=html}                                                   |
|       | <!-- -->                                                     |
|       | ```                                                          |
|       | -   monthly amount to be withheld in accordance with [M21-1, |
|       |     Part V,                                                  |
|       |     6.11                                                     |
|       | ](http://www.warms.vba.va.gov/admin21/m21_1/part5/ch06.doc). |
|       |                                                              |
|       | > ***Note***: There is no need to prospectively delete the   |
|       | > applicable type of withholding from the pending award      |
|       | > data.                                                      |
+-------+--------------------------------------------------------------+
| 3     | > In the Monthly Rate column for the award line, enter       |
|       | > either                                                     |
|       |                                                              |
|       | -   "*000*.*00*" if the total amount payable is withheld for |
|       |     any period, or                                           |
|       |                                                              |
|       | -   the difference between the total award and the amount to |
|       |     be withheld.                                             |
+-------+--------------------------------------------------------------+

+-----------------------------------------------------------------------+
| > ***Note***: If SMC must be withheld for disability severance pay    |
| > recoupment                                                          |
|                                                                       |
| -   manually calculate the withholding, and                           |
|                                                                       |
| -   enter the withholding amount in the WITHHOLD field of the pending |
|     award.                                                            |
|                                                                       |
| > ***Reference***: For more information on recoupment of disability   |
| > severance pay, see M21-1MR, Part III, Subpart v, 4.B.7.b.           |
+-----------------------------------------------------------------------+

Continued on next page

9\. Preparing Awards and Notifying the Beneficiary, Continued

+------------+---------------------------------------------------------+
| ##         | > The table below describes how 100 percent recoupment  |
| ### c. Dis | > appears on the BIRLS Miscellaneous Data (MSC) screen. |
| play of 10 |                                                         |
| 0 Percent  |                                                         |
| Recoupment |                                                         |
|  on BIRLS  |                                                         |
| MSC Screen |                                                         |
+------------+---------------------------------------------------------+

+--------------+-------------------------------------------------------+
| Screen       | Description                                           |
+--------------+-------------------------------------------------------+
| M            | If there is an entry in one of the following fields   |
| iscellaneous | and a PIF is established, then the pending award data |
| Data (MSC)   | should display 100 percent of the amount found on the |
| screen       | BIRLS MSC screen:                                     |
|              |                                                       |
|              | -   DISABILITY SEVERANCE PAY                          |
|              |                                                       |
|              | -   LUMPSUM READJUSTMENT PAY, and                     |
|              |                                                       |
|              | -   SEPARATION PAY.                                   |
+--------------+-------------------------------------------------------+
| Pending      | If an amount is entered in one of the following       |
| award        | fields, 100 percent of the amount entered is          |
|              | displayed and recouped by the system:                 |
|              |                                                       |
|              | -   DISAB SEV                                         |
|              |                                                       |
|              | -   READJUST, and                                     |
|              |                                                       |
|              | -   SEPARATION.                                       |
+--------------+-------------------------------------------------------+

+-----------------------------------------------------------------------+
| > ***Note***: If severance, readjustment or separation pay was        |
| > received after September 30, 1996, enter the after-tax amount on    |
| > the BIRLS MSC screen. SSB received at any time is subject to the    |
| > after-tax recoupment.                                               |
+-----------------------------------------------------------------------+

Continued on next page

9\. Preparing Awards and Notifying the Beneficiary, Continued

+------------+---------------------------------------------------------+
| ##### d. 7 | > If recoupment at the 75 percent rate is required      |
| 5 Percent  | > under former 10 U.S.C. 687 for readjustment pay prior |
| Recoupment | > to September 15, 1981, manually change the amount in  |
|  of Readju | > the [READJUST]{.smallcaps} field to 75 percent of the |
| stment Pay | > amount in the [READJUSTMENT PAY]{.smallcaps} field on |
|            | > the BIRLS MSC screen.                                 |
|            | >                                                       |
|            | > ***Note***: If the 75 percent rate was erroneously    |
|            | > entered in the [READJUSTMENT PAY]{.smallcaps} field   |
|            | > on the MSC screen, ensure the pending award data      |
|            | > reflects the correct recoupment amount.               |
|            | >                                                       |
|            | > ***References***: For more information on             |
|            |                                                         |
|            | -   making a change when recoupment amount already      |
|            |     exists in the master record, see M21-1MR, Part III, |
|            |     Subpart v, 4.B.9.f, and                             |
|            |                                                         |
|            | -   readjustment pay under former 10 U.S.C. 687, see    |
|            |     M21-1MR, Part III, Subpart v, 4.B.5.e.              |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| #####      | > ***Situation***: The VSR enters \$10,000 in the       |
|  e. Exampl | > [LUMPSUM READJUSTMENT]{.smallcaps} field on the BIRLS |
| e: Changin | > MSC screen, and a pending issue file (PIF) is         |
| g Recoupme | > subsequently established. \$10,000 is input in the    |
| nt Amounts | > [READJUST]{.smallcaps} field.                         |
|            | >                                                       |
|            | > ***Recoupment at the 100 Percent Rate***: When the    |
|            | > award is generated, the system recoups disability     |
|            | > compensation until the \$10,000 is withheld.          |
|            | >                                                       |
|            | > ***Recoupment at the 75 Percent Rate***: Change the   |
|            | > amount in the [READJUST]{.smallcaps} field in the     |
|            | > pending award data to \$7,500. When the award is      |
|            | > generated, the system recoups disability compensation |
|            | > until the \$7,500 is withheld.                        |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| ##         | > When an amount or balance to be recouped has been     |
| ### f. Mak | > established in the master record, do *not* enter it   |
| ing a Chan | > or change it on amended awards.                       |
| ge to Reco | >                                                       |
| upment Amo | > If an adjustment in the balance to be recouped is     |
| unt in Mas | > required, send an *Optional Form (OF) 41*, *Routing   |
| ter Record | > and Transmittal Slip* to finance requesting that the  |
|            | > recoupment balance be changed.                        |
|            | >                                                       |
|            | > ***Note***: The adjustment must be made by finance    |
|            | > activity *before* completing amended award action.    |
+------------+---------------------------------------------------------+

Continued on next page

9\. Preparing Awards and Notifying the Beneficiary, Continued

+------------+---------------------------------------------------------+
| ##### g    | > When the award has been prepared,                     |
| . Providin |                                                         |
| g Award No | -   suppress the automatically generated notification   |
| tification |     letter, and                                         |
|            |                                                         |
|            | -   notify the beneficiary by locally-generated PCGL    |
|            |     letter of                                           |
|            |                                                         |
|            | ```{=html}                                              |
|            | <!-- -->                                                |
|            | ```                                                     |
|            | -   the total amount of the award                       |
|            |                                                         |
|            | -   the recoupment required, and                        |
|            |                                                         |
|            | -   any net monthly rate, if any, to be received.       |
|            |                                                         |
|            | > ***Reference***: For more information on providing    |
|            | > award notification, see M21-1MR, Part III, Subpart v, |
|            | > 2.B.9.b.                                              |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| ##### h    | > When compensation is awarded, but payments will *not* |
| . Providin | > be sent until a disability severance pay or lump sum  |
| g Notifica | > readjustment pay is recouped, notify the beneficiary  |
| tion of Wi | > or his/her fiduciary via locally-generated letter     |
| thheld Awa | > that                                                  |
| rd Payment |                                                         |
|            | -   he/she                                              |
|            |                                                         |
|            | ```{=html}                                              |
|            | <!-- -->                                                |
|            | ```                                                     |
|            | -   will not receive any payments until the amount has  |
|            |     been recouped, and                                  |
|            |                                                         |
|            | -   must provide VA with his/her current address at all |
|            |     times                                               |
|            |                                                         |
|            | ```{=html}                                              |
|            | <!-- -->                                                |
|            | ```                                                     |
|            | -   failure to report for a scheduled examination or    |
|            |     furnish required evidence may result in a           |
|            |     discontinuation of his/her compensation, and        |
|            |                                                         |
|            | -   future monetary benefits provided by VA could be    |
|            |     delayed or not delivered.                           |
|            |                                                         |
|            | > ***Note***: This information is *not* provided in the |
|            | > automatically generated letter.                       |
+------------+---------------------------------------------------------+

#### 10. Amending and Adjusting an Award Subject to Recoupment

+------------+---------------------------------------------------------+
| ##### In   | > There are specific procedures for amending and        |
| troduction | > adjusting awards subject to recoupment.               |
|            | >                                                       |
|            | > This topic contains information on                    |
|            |                                                         |
|            | -   amending awards for                                 |
|            |                                                         |
|            | ```{=html}                                              |
|            | <!-- -->                                                |
|            | ```                                                     |
|            | -   future increases or decreases, and                  |
|            |                                                         |
|            | -   retroactive adjustments                             |
|            |                                                         |
|            | ```{=html}                                              |
|            | <!-- -->                                                |
|            | ```                                                     |
|            | -   example of award granting retroactive benefits      |
|            |     prior to date of liquidation of recoupment          |
|            |                                                         |
|            | -   adjusting awards for                                |
|            |                                                         |
|            | ```{=html}                                              |
|            | <!-- -->                                                |
|            | ```                                                     |
|            | -   awards for reduced evaluations, and                 |
|            |                                                         |
|            | -   recoupment and withholding for terminated awards,   |
|            |     and                                                 |
|            |                                                         |
|            | ```{=html}                                              |
|            | <!-- -->                                                |
|            | ```                                                     |
|            | -   information on effect of apportioned awards subject |
|            |     to recoupment.                                      |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| ##### C    | > January 12, 2007                                      |
| hange Date |                                                         |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| ##### a.   | > When the total award or amounts to be withheld or     |
|  Amending  | > paid will be impacted by a future increase or         |
| Awards for | > decrease, prepare and process an amended award in the |
|  Future In | > usual manner for any award involving a withholding.   |
| creases or |                                                         |
|  Decreases |                                                         |
+------------+---------------------------------------------------------+

Continued on next page

10\. Amending and Adjusting an Award Subject to Recoupment, Continued

+------------+---------------------------------------------------------+
| ##         | > Use the table below to determine adjustments for      |
| ### b. Ame | > retroactive awards.                                   |
| nding Awar | >                                                       |
| ds for Ret | > ***Note***: Handle retroactive adjustments, other     |
| roactive A | > than those described in the table below, in the usual |
| djustments | > manner.                                               |
+------------+---------------------------------------------------------+

+------------------+---------------------------------------------------+
| If ...           | Then ...                                          |
+------------------+---------------------------------------------------+
| there is an      | make net prior award entries for each retroactive |
| existing balance | period to reflect the                             |
| to be recouped   |                                                   |
|                  | -   monthly rate                                  |
|                  |                                                   |
|                  | -   effective date                                |
|                  |                                                   |
|                  | -   withholding type, and                         |
|                  |                                                   |
|                  | -   amount of recoupment for each period covered  |
|                  |     by the amended award.                         |
|                  |                                                   |
|                  | ***Result***: The master record recoupment        |
|                  | increases or decreases automatically as required. |
|                  |                                                   |
|                  | ***Reference***: For more information on net      |
|                  | prior awards, see [M21-1, Part V,                 |
|                  | 6.13](http://ww                                   |
|                  | w.warms.vba.va.gov/admin21/m21_1/part5/ch06.doc). |
+------------------+---------------------------------------------------+
| the total amount | -   determine the date on which the recoupment    |
| for recoupment   |     was liquidated from the master record         |
| has been         |                                                   |
| liquidated and   | ```{=html}                                        |
| eliminated from  | <!-- -->                                          |
| the master       | ```                                               |
| record           | -   from information in the claims folder, or     |
|                  |                                                   |
|                  | -   from Finance activity computation of the      |
|                  |     date, and                                     |
|                  |                                                   |
|                  | ```{=html}                                        |
|                  | <!-- -->                                          |
|                  | ```                                               |
|                  | -   if this date is later than the effective date |
|                  |     of the retroactive period, include in the     |
|                  |     amended award the                             |
|                  |                                                   |
|                  | ```{=html}                                        |
|                  | <!-- -->                                          |
|                  | ```                                               |
|                  | -   net monthly rate                              |
|                  |                                                   |
|                  | -   withholding type, and                         |
|                  |                                                   |
|                  | -   amount of recoupment through the end of the   |
|                  |     month in which the balance was liquidated.    |
|                  |                                                   |
|                  | > ***Rationale***: If the award does not reflect  |
|                  | > the prior recoupment, it may generate an        |
|                  | > overpayment and re-establish the recoupment     |
|                  | > balance.                                        |
|                  | >                                                 |
|                  | > ***Reference***: For an example of a            |
|                  | > retroactive award to grant benefits prior to    |
|                  | > the date of liquidation, see M21-1MR, Part III, |
|                  | > Subpart v, 4.B.10.c.                            |
+------------------+---------------------------------------------------+

Continued on next page

10\. Amending and Adjusting an Award Subject to Recoupment, Continued

  -----------------------------------------------------------------------
  b\. Amending Awards for Retroactive Adjustments (continued)

  -----------------------------------------------------------------------

+------------------+---------------------------------------------------+
| If ...           | Then ...                                          |
+------------------+---------------------------------------------------+
| a recoupment     | -   do *not* adjust the prior award data          |
| balance is       |                                                   |
| reinstated       | -   enter the                                     |
| subject to       |                                                   |
| withholding      | ```{=html}                                        |
|                  | <!-- -->                                          |
|                  | ```                                               |
|                  | -   new balance as the total amount to be         |
|                  |     recouped minus the amount previously recouped |
|                  |     in the "Recoupment Balance" item on the       |
|                  |     amended award, and                            |
|                  |                                                   |
|                  | -   appropriate withholding as in the case of a   |
|                  |     reopened award, per M21-1MR, Part III,        |
|                  |     Subpart v, 4.B.9.b.                           |
|                  |                                                   |
|                  | > ***Rationale***: Do not adjust the prior award  |
|                  | > data since all master record data as to prior   |
|                  | > recoupment balance and withholding will have    |
|                  | > been eliminated.                                |
+------------------+---------------------------------------------------+

+------------+---------------------------------------------------------+
| #####      | > ***Situation***: A veteran received disability        |
| c. Example | > severance pay for a disability evaluated at 30        |
| : Award Gr | > percent by VA effective June 1, 1998. The final       |
| anting Ret | > recoupment balance of \$140 was withheld from her     |
| roactive B | > compensation payment for April 2002. In July 2002,    |
| enefits Pr | > she became entitled to a rate increase from \$306 (30 |
| ior to Dat | > percent) to \$625 (50 percent) effective January 1,   |
| e of Liqui | > 2002.                                                 |
| dation of  | >                                                       |
| Recoupment | > The award data below shows the entries required to    |
|            | > increase the payment rate retroactively without       |
|            | > creating an overpayment of the retroactive period.    |
|            | >                                                       |
|            | > ***Note***: A 04-01-02 award line showing the partial |
|            | > deduction of \$140 is *not* needed.                   |
|            | >                                                       |
|            | > **Pending Award Data**                                |
+------------+---------------------------------------------------------+

  ---------- ----- -------- ---- ------- ------- ---- ----- ----- ---------- ------------
  DATE       RSN   RATE     EC   DISAB   DEPEN   S H  INC   SLC   WITHHOLD   DED-OFFSET

  01-01-02   33    319.00   71   050     00/00   0 0                         9 306.00

  05-01-02   33    625.00   71   050     00/00   0 0                         0

  12-01-02   37    633.00   71   050     00/00   0 0                         

  12-01-03   37    646.00   71   050     00/00   0 0                         
  ---------- ----- -------- ---- ------- ------- ---- ----- ----- ---------- ------------

Continued on next page

10\. Amending and Adjusting an Award Subject to Recoupment, Continued

+------------+---------------------------------------------------------+
| ##### d.   | When a veteran's disability is reexamined and a lower   |
| Adjusting  | evaluation is warranted                                 |
| Awards for |                                                         |
|  Reduced E | -   apply the provisions of [38 CFR                     |
| valuations |     3.105(e)](http://w                                  |
|            | ww.warms.vba.va.gov/regs/38CFR/BOOKB/PART3/S3_105.DOC), |
|            |     and                                                 |
|            |                                                         |
|            | -   allow the veteran 60 days to provide additional     |
|            |     evidence.                                           |
|            |                                                         |
|            | ***Note***: This is considered a running award even     |
|            | though the total amount of compensation is being        |
|            | withheld to recoup readjustment, severance, or          |
|            | separation pay.                                         |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| ##### e    | > When an award for disability compensation that is     |
| . Adjustin | > subject to recoupment is discontinued or terminated   |
| g Recoupme | > for any reason, the amount *not* recouped             |
| nt and Wit |                                                         |
| hholding f | -   remains as a charge against any future award of     |
| or Termina |     disability compensation, and                        |
| ted Awards |                                                         |
|            | -   is subject to recovery from any future award of     |
|            |     disability compensation in the same manner provided |
|            |     in M21-1MR, Part III, Subpart v, 4.B.9.b.           |
|            |                                                         |
|            | > ***Example of Termination Reason***: Failure to       |
|            | > report for an examination.                            |
|            | >                                                       |
|            | > ***Exception***: This does not apply when the veteran |
|            | > dies before recoupment of the total pay awarded.      |
|            | > Unrecouped benefits of a veteran are not transferred  |
|            | > to a death claim.                                     |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| ####       | > For information on how apportionment affects awards   |
| # f. Infor | > subject to recoupment, see M21-1MR, Part III, Subpart |
| mation on  | > v, 3.A.4.a.                                           |
| Effect of  |                                                         |
| Apportione |                                                         |
| d Awards S |                                                         |
| ubject to  |                                                         |
| Recoupment |                                                         |
+------------+---------------------------------------------------------+