To amend title 10, United States Code, to permit retired members of the Armed Forces who have a service-connected disability rated less than 50 percent to receive concurrent payment of both retired pay and veterans' disability compensation, to eliminate the phase-in period for concurrent receipt, to extend eligibility for concurrent receipt and combat-related special compensation to chapter 61 disability retirees with less than 20 years of service, and for other purposes.

Summary: Disabled Veterans Tax Termination Act - Amends federal military retired pay provisions to: (1) permit veterans with a service-connected disability of less than 50% to claim both retired pay and disability compensation; (2) eliminate provisions requiring a phase in between January 1, 2004, and December 31, 2013, of concurrent receipt of retired pay and disability compensation; (3) provide a special reduction rule with respect to the concurrent receipt of retired pay and disability compensation in the case of disability retirees with less than 20 years of creditable service; and (4) extend combat-related special compensation to certain veterans with less than 20 years of service who have a combat-related disability.

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Disabled Veterans Tax Termination 
Act''.

SEC. 2. CONCURRENT RECEIPT OF BOTH RETIRED PAY AND VETERANS' DISABILITY 
              COMPENSATION FOR MILITARY RETIREES WITH COMPENSABLE 
              SERVICE-CONNECTED DISABILITIES.

    (a) Inclusion of Retirees With Service-Connected Disabilities Rated 
Less Than 50 Percent.--Subsection (a) of section 1414 of title 10, 
United States Code, is amended--
            (1) by striking ``Compensation'' in the subsection heading 
        and all that follows through ``Subject'' and inserting 
        ``Compensation.--Subject'';
            (2) by striking ``qualifying service-connected disability'' 
        and inserting ``service-connected disability''; and
            (3) by striking paragraph (2).
    (b) Repeal of Phase-In of Concurrent Receipt of Retired Pay and 
Veterans' Disability Compensation.--Such section is further amended--
            (1) in subsection (a), as amended by subsection (a) of this 
        section, by striking the final sentence;
            (2) by striking subsection (c) and redesignating 
        subsections (d) and (e) as subsections (c) and (d), 
        respectively; and
            (3) in subsection (d), as so redesignated, by striking 
        paragraphs (3) and (4).
    (c) Inclusion of Disability Retirees With Less Than 20 Years of 
Service.--Subsection (b) of such section is amended--
            (1) in paragraph (1), by striking ``member retired'' and 
        inserting ``qualified retiree who is retired''; and
            (2) by striking paragraph (2) and inserting the following 
        new paragraph:
            ``(2) Disability retirees with less than 20 years of 
        service.--The retired pay of a qualified retiree who is retired 
        under chapter 61 of this title with fewer than 20 years of 
        creditable service is subject to reduction under sections 5304 
        and 5305 of title 38, but only by the amount (if any) by which 
        the amount of the member's retired pay under such chapter 
        exceeds the amount equal to 2\1/2\ percent of the member's 
        years of creditable service multiplied by the member's retired 
        pay base under section 1406(b)(1) or 1407 of this title, 
        whichever is applicable to the member.''.
    (d) Clerical Amendments.--
            (1) Section heading.--The heading for such section is 
        amended to read as follows:
``Sec. 1414. Members eligible for retired pay who are also eligible for 
              veterans' disability compensation: concurrent payment of 
              retired pay and disability compensation''.
            (2) Table of sections.--The item relating to such section 
        in the table of sections at the beginning of chapter 71 of such 
        title is amended to read as follows:

``1414. Members eligible for retired pay who are also eligible for 
                            veterans' disability compensation: 
                            concurrent payment of retired pay and 
                            disability compensation.''.
    (e) Conforming Amendment.--Section 1413a(f) of such title is 
amended by striking ``Subsection (d)'' and inserting ``Subsection 
(c)''.
    (f) Effective Date.--The amendments made by this section shall take 
effect on the first day of the first month beginning after the date of 
the enactment of this Act and shall apply to payments for months 
beginning on or after that date.

SEC. 3. AVAILABILITY OF COMBAT-RELATED SPECIAL COMPENSATION ELIGIBILITY 
              FOR CHAPTER 61 MILITARY RETIREES WITH LESS THAN 20 YEARS 
              OF SERVICE.

    (a) Eligibility.--Subsection (c) of section 1413a of title 10, 
United States Code, is amended by striking ``entitled to retired pay 
who_'' and all that follows through the end of paragraph (1) and 
inserting ``who_
            ``(1) is entitled to retired pay (other than by reason of 
        section 12731b of this title); and''.
    (b) Computation.--Paragraph (3) of subsection (b) of such section 
is amended--
            (1) by striking ``In the case of'' and inserting the 
        following:
                    ``(A) In general.--In the case of''; and
            (2) by adding at the end the following new subparagraph:
                    ``(B) Retirees with fewer than 20 years of 
                service.--In the case of an eligible combat-related 
                disabled uniformed services retiree who is retired 
                under chapter 61 of this title with fewer than 20 years 
                of creditable service, the amount of the payment under 
                paragraph (1) for any month shall be reduced by the 
                amount (if any) by which the amount of the member's 
                retired pay under chapter 61 of this title exceeds the 
                amount equal to 2\1/2\ percent of the member's years of 
                creditable service multiplied by the member's retired 
                pay base under section 1406(b)(1) or 1407 of this 
                title, whichever is applicable to the member.''.
    (c) Effective Date.--The amendments made by this section shall take 
effect on the first day of the first month beginning after the date of 
the enactment of this Act and shall apply to payments for months 
beginning on or after that date.