Paying back military severance pay

Q: As a Reserve Retiree, I am oblig­ated to repay $30,000 sev­er­ance pay I received when I departed Active Duty. My ques­tion is if I should take my sav­ings and pay this amount now or would it be bet­ter to pay it back at $1200 a month? I am 62 and can draw my Social Secu­rity and the $1200 would make it much eas­ier to live on social secu­rity sup­ple­mented by a part time posi­tion. Could this repay­ment pos­si­ble be tax write off? Thanks.

–Robert, Hat­ties­burg, Miss.

A:  Back in the 90’s, in an effort to reduce the ranks of the mil­i­tary, some ser­vice mem­bers were offered a sev­er­ance pack­age. Mil­i­tary mem­bers got to keep the no-strings-attached sev­er­ance pay as long as they did not rejoin the mil­i­tary and, ulti­mately, qual­ify for retire­ment. You can’t get sev­er­ance and retire­ment pay both! That’s appar­ently what hap­pened to you.

The prac­tice of the gov­ern­ment recoup­ing Vol­un­tary Sep­a­ra­tion Incen­tive, Spe­cial Sep­a­ra­tion Ben­e­fit and other sep­a­ra­tion pay has been on hold for about the last year as the pro­gram has been under review. Since Fed­eral law pro­hibits mil­i­tary mem­bers from receiv­ing sep­a­ra­tion and retire­ment pay­ments for the same period of ser­vice, you do have to repay your sev­er­ance. How­ever, fol­low­ing the review Con­gress pro­vided DFAS more flex­i­bil­ity in how they accom­plish this. In fact, the max­i­mum recoup­ment was decreased from 90 per­cent to 40 per­cent. If your sit­u­a­tion war­rants, you can request a more lenient repay­ment sched­ule. Check out this news release for all the info.

 Now to your ques­tion… At $1200 per month, you’d be paid-in-full in just over two years and then all of your mil­i­tary retire­ment pay would be yours. While I’m a fan of being debt free, it’s hard to say with cer­tainty if you should take $30,000 out of sav­ings now and get that mon­key off your back. If you have plenty of sav­ings in a bank or bro­ker­age account, well, maybe. If you have to make a with­drawal from a tra­di­tional retire­ment account, I’m prob­a­bly going to say no because your dis­tri­b­u­tion would be fully tax­able. And, regard­ing social Secu­rity, I would dis­cour­age you from tak­ing it at age 62 and wait as long as you can to lock in the increased ben­e­fit of 5%+ per year! Good luck and thank you for your service.

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22 responses to “Paying back military severance pay”

  1. Hello,
    I stand to recieve my dis­abled Vet rat­ing soon. Can you please briefly explain to me how “back-pay” works? From what dates do they cal­cu­late this? Thanx!

    1. The moment you start your paper­work for your dis­abil­ity if you are given a rat­ing that wartrents you get­tinga check.. the moment they got the paper work and started on it till they dicide on your rat­ing they have to pay you for it. So say you start your paper work in March and it takes them 6 months to com­plete ..you get back pay for that whole time that they were doing your claim.

  2. I served 12 years in the USMC and took the SSB in Jan 1992. Is there any way that i can pay back the SSB and use the 12 years towards my cur­rent county gov­ern­ment ; retire­ment which is 30 years.

    1. You can use your mil­i­tary time towards county retire­ment. Repay­ment of SSB is a fed­eral require­ment for future retire­ments with the fed­eral government.

  3. We have a ques­tion: my hus­band was forced out of the army and given a sev­er­ance pay not informed we had to pay it back. He was assigned to a reserve unit after sep­a­ra­tion to fin­ish his 20 years. Now at 60 yrs of age when he started receiv­ing retire­ment pay, we got a let­ter that we have to pay the sev­er­ance back. How­ever, they are still pay­ing us retire­ment minus a small per­cent­age. Do we have to pay it back. Is there any legal course we can take?

    1. You have to pay it back we are int he same spot atm, but they are tak­ing all my hus­bands dis­abil­ity which isn’t much. Atm we are await­ing a new rat­ing on his dis­abil­ity. How­ever with retire­ment its like ten per­cent that take out to pay it back, with dis­abil­ity its 100 per­cent till paid off. Im think­ing maybe since retire­ment is soemthing your liv­ing on once you start draw­ing it they fig­ures your income is lim­ited, also now that you can get dis­abil­ity and retire­ment now­days con­cur­rently they can get it all back faster.
      Chances are some­where in the course of the paper work he signed when he got out it was in there in writ­ing so chances for recourse are slim unless you have a copy of all that paper work and can;t find it even then sue­ing the Fed­eral Gov­ern­ment is a pain and even if you get it dis­missed chances of recoup­ing Atty fees and such you may lose out in the end.

  4. For the past three months I have been try­ing to pay back my server­ance pay that I got from the Army. This was due to BRAC. I used all of it but 1 pay period which they paid me for. I am try­ing to pay back the money but I am hav­ing a hard time get­ting in tocuh with peo­ple so I can pay it back.

  5. here is on for you iam a ser­vice con­nected vet 30 per­cent dis­abled. i was given sev­er­ance pay when i was sekected for down sizong the forces due to med­ical rea­sons. after i started reciev­ing a small check for my dis­ablity. about 6 myths i got a sev­er­ance pay check my dis­ab­bil­ity stopped. they said i have to pay it back iam sorry but this is bull shit. and yes i paid it back . ..

    1. As I stated above its in the paper work even if you were not told when you dis­charged. The ideal of the sev­er­ence pay is more of a retire­ment pay up front .. and well pay­ing it back is bet­ter than los­ing any retir­ment you may get later on since the sum would be greater over all if your ever eli­gi­ble for it. Alot of sol­diers got invol­un­tar­ily dis­chaged dur­ing the Clin­ton years.. and also for other reasons.

  6. My hus­band was forced out back in the late 90’s and given a sev­er­ence pack­age of 30k before taxes. He went reserve and a got out in 2007 now we are pay­ing it back with the ten per­cent dis­abil­ity he cur­rently is rated at..Its pay­ing back a whole 127 a month and atm wait­ing for an answer to an increase in dis­abil­ity thru the VA. What we was told way back then was they would take ten per­cent of at that time the retir­ment pay when he came around to retire­ment out per month to play it back.. I guessa a few yrs later they decided it can also come out of the dis­abil­ity pay. So are they no longer just tak­ing ten per­cent or they tak­ing it all till its paid off ?

  7. BTW that link in the above first response does not work. I go to it and get a 404 error..

  8. My hus­band went in the mil­i­tary and dur­ing basic train­ing he hurt his knee and was hon­or­able dis­charged. It has been 10 years since he was dis­charged. Is he owed any­thing? Should he go to our local VA and start paper work? By the way his knee is still not 100%.

    1. Go to your local VA rep, or go online to the VA com­pen­sa­tion web­site and file a claim. They owe you from the DAY IT IS FILED, not from time of injury. If given any­thing it will cover his dis­abil­ity (knee) and com­pen­sate a cer­tain per­cent­age. Be pre­pared with med­ical evi­dence, and you can even request his med­ical record to show that it hap­pened in ser­vice. This ser­vice con­nec­tion MUST be made or now com­pen­sa­tion will be given.

  9. please tell me who to con­tact (per­son) about ssb recoupment

  10. i got out of mil­i­tary in 1992 in draw down. i recieved 46000.00 in ssb before taxes were held out and now i am repay­ing the full 46000.00 which includes the t axes again. i have applied for va dis­abil­ity ben­e­fits in 1992 an was awarded 10% and has increased up to 20%. i have never recieved any monies what­so­ever over the last 20 years from va i do not even know how to find out how much has been recouped can any­one advise me?

  11. I received active duty sev­er­ence pay and will soon start receiv­ing reserve retired pay. Will I be asked to pay back the full amount before taxes since I already paid taxes on that money? If so, how can I recoup the taxes already paid on the sev­er­ance money? I shouldn’t have to pay taxes twice.

    1. Yes you will have to repay, but the repay­ment is made as a pre-tax deduc­tion and you may be able to deduct the pay­ments (see IRS Pub­li­ca­tion 525–repayments (page 33–34 in link below) and con­sult your tax advi­sor.
      http://​www​.dfas​.mil/​r​e​t​i​r​e​d​m​i​l​i​t​a​r​y​/​p​l​a​n​/​s​e​p​a​r​ati
      http://​www​.irs​.gov/​p​u​b​/​i​r​s​-​p​d​f​/​p​5​2​5​.​pdf

  12. I noticed that most of the peo­ple here have retired, we took a mil­i­tary sep­a­ra­tion with 54k pay­out, then the VA took that money back every month. We don’t have a mil­i­tary retire­ment, should they have made us pay it back?

  13. It seems as if the sev­er­ance pay has become a major issue and I just did my ACAP class and asked ques­tions about the sev­er­ance pay and the acap cen­ter con­tiniusly avioded giv­ing an answer. So why isnt the Army doing a bet­ter job on inform­ing sol­diers bet­ter about sep­per­a­tion pay. Knowl­edge is power and lets us pre­pare bet­ter instead of set­ting us up for fialure.

  14. And what are the sup­port­ing Reg­u­la­tions and Doc­u­ments sup­ported by law to learn what our true rights are and how far can can they go to the lim­its of the law

  15. I am on the same boat as jcs3 above..I too got out in 1987 and received 30,000 in sev­er­ance pay. Now I am look­ing down the bar­rel of retir­ing in another year or so and hav­ing to pay back the monies. I also receive va dis­abil­ity at 40%. If the mil­i­tary thought that $30,000 was com­pen­satory and equal to a retire­ment;, then I am stunned. That would mean that I would essen­tially have $1,000/yr to live on for 30 yrs (1987 to 2017). Now I can retire soon from the reserves and get some­what of a real retire­ment and now I’m told I have to pay­back the $30,000 AND at the untaxed rate. jcs3 is right.…this dou­ble tax­a­tion is unfair and should be ille­gal. I don’t know of any orga­ni­za­tions, other than cor­po­ra­tions, that get dou­ble taxed. Some­thing needs to be done on DFAS’s side of things. Nobody seems to have answers to this and they keep pass­ing the buck! I do believe that vet­er­ans have earned their keep and more and should be given a fair shake. God know the fed­eral gov­ern­ment has prob­lems man­ag­ing money, but they sure seem to know how to take ours again and again. It would be inter­est­ing to see if Con­gress or the House of Reps were to have issues like these, how long it would take them to resolve AND to their ben­e­fit. I bet not long at all. Appre­ci­ate any­one else’s input. SP

  16. I was dis­charged in 1984 with 10%, and a sev­er­ance pay of $30,000. I am now receiv­ing 30% but only receiv­ing 20% in pay. Will I ever get the full 30% in pay.

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