IRS TAX RELATED TO PEB

I'm wondering,
Since the PEB determine that my referred condition is combat related, that mean my retirement pay will not be taxed (so, it'll basically be like VA pay). Do I really need to file taxes claiming retired pay?? (i'm thinking not because VA disability has never have to be reported to the IRS, seem like it only make sense to be the same way)

 

[Provis]

I'm wondering,
Since the PEB determine that my referred condition is combat related, that mean my retirement pay will not be taxed (so, it'll basically be like VA pay). Do I really need to file taxes claiming retired pay?? (i'm thinking not because VA disability has never have to be reported to the IRS, seem like it only make sense to be the same way)

There is nothing to file. If you get only VA or if your chapter 61 pension is being paid to you after the offset its exempt. You will know this because DFAS won't issue you a 1099R because you have no taxable income.

FYI unless you are an officer most people have all of their chapter 61 pension offset by VA compensation which is tax free. Having the chapter 61 pension combat related only really helps if your chapter 61 pension is larger than your VA compensation. For example. My wife's chapter 61 pension was $6,000. She was an O4 with 75% maxed out DOD%. She was in for a long time so her HIGH 3 was a large amount. She received $4,200 a month from VA. That meant after the $4,200 offset she received $1,800 from DFAS for her chapter 61 pension. She had one condition that was combat related too. So that $1,800 was exempt from taxes. She didn't need to claim it and there was no 1099R issued by DFAS for the past year of her pension income.

 

[teey]

There is nothing to file. If you get only VA or if your chapter 61 pension is being paid to you after the offset its exempt. You will know this because DFAS won't issue you a 1099R because you have no taxable income.

FYI unless you are an officer most people have all of their chapter 61 pension offset by VA compensation which is tax free. Having the chapter 61 pension combat related only really helps if your chapter 61 pension is larger than your VA compensation. For example. My wife's chapter 61 pension was $6,000. She was an O4 with 75% maxed out DOD%. She was in for a long time so her HIGH 3 was a large amount. She received $4,200 a month from VA. That meant after the $4,200 offset she received $1,800 from DFAS for her chapter 61 pension. She had one condition that was combat related too. So that $1,800 was exempt from taxes. She didn't need to claim it and there was no 1099R issued by DFAS for the past year of her pension income.

hmm interesting....that makes sense! I see exactly what you mean. I'm assuming the CRSC when I apply for it and get approved, let's say they decide to pay me $800/ month. Will that be tax exempt too or no?

 

[Provis]

hmm interesting....that makes sense! I see exactly what you mean. I'm assuming the CRSC when I apply for it and get approved, let's say they decide to pay me $800/ month. Will that be tax exempt too or no?

So if your chapter 61 pension has one combat related unfitting condition all income will be exempt from taxes. That is because the other 2 sources you can get which are VA and CRSC are tax exempt too. So yes all income is exempt. That is a huge benefit for our family. My wife gets $1,600 in CRSC too. My wife also has SSDI income and that income can be subject to taxes depending on your family's income. Since all of her military income is exempt most of her SSDI is exempt too. Its not all exempt since I do have an income and they base it off of the entire family if you file jointly for taxes.

 

[teey]

So if your chapter 61 pension has one combat related unfitting condition all income will be exempt from taxes. That is because the other 2 sources you can get which are VA and CRSC are tax exempt too. So yes all income is exempt. That is a huge benefit for our family. My wife gets $1,600 in CRSC too. My wife also has SSDI income and that income can be subject to taxes depending on your family's income. Since all of her military income is exempt most of her SSDI is exempt too. Its not all exempt since I do have an income and they base it off of the entire family if you file jointly for taxes.

oh that's excellent. I love not having to report incoming income to the IRS (-_-). Wow your wife has it all Retirement, CRSC, VA, and SSDI, lol she's not leaving not leaving nothing on the table. I'd love to do SSDI too but I'm a federal employee now but once I retired i'm applying for it immediately. But from my research SSDI is harder than any one of them.

 

[chaplaincharlie]

oh that's excellent. I love not having to report incoming income to the IRS (-_-). Wow your wife has it all Retirement, CRSC, VA, and SSDI, lol she's not leaving not leaving nothing on the table. I'd love to do SSDI too but I'm a federal employee now but once I retired i'm applying for it immediately. But from my research SSDI is harder than any one of them.

SSDI is the hardest. Itis based on your inability to to do Activities of Daily Living.

1. Ambulating. This includes the ability to walk, sit, stand, lie down and get up, and climb up and down stairs, both inside and outside your home.
2. Grooming. This includes all activities necessary to maintain personal hygiene, like brushing your teeth, bathing, shaving, and hair and nail care.
3. Toileting. This includes the ability to control your bladder and bowels (continence), use the toilet safely, and clean yourself after use.
4. Dressing. This involves the ability to dress yourself properly, including using buttons and zippers.
5. Eating. This includes the ability to use cutlery and feed yourself.

 

[RangerVic]

So is the tax exempt DOD disability capped at 75%? I was rated 90% by MEB with combat related. My retirement pension is based on time in service because of the disability limit of 75%. My time in service is 85%. I initially spoke to a person (supervisor) at DFAS that said that my pension would not be taxed up to my rated disability and anything after that would be taxed. So, RSO is saying that untaxed is limited to 75% also.
These RSO people have already been wrong at least two times with what my pay should be. Anyone know the answer? Is it capped at 75% or at the disability rating?

 

[Provis]

So is the tax exempt DOD disability capped at 75%? I was rated 90% by MEB with combat related. My retirement pension is based on time in service because of the disability limit of 75%. My time in service is 85%. I initially spoke to a person (supervisor) at DFAS that said that my pension would not be taxed up to my rated disability and anything after that would be taxed. So, RSO is saying that untaxed is limited to 75% also.
These RSO people have already been wrong at least two times with what my pay should be. Anyone know the answer? Is it capped at 75% or at the disability rating?

By law you can't get more than 75% DOD. My wife was 90% DOD and her chapter 61 pension is 75% of her high 3.

So if one or more unfitting conditions combat related its all exempt. No one can get more than 75% DOD. That's the most anyone can get whether taxable or not.

 

[RangerVic]

By law you can't get more than 75% DOD. My wife was 90% DOD and her chapter 61 pension is 75% of her high 3.

So if one or more unfitting conditions combat related its all exempt. No one can get more than 75% DOD. That's the most anyone can get whether taxable or not.

Ok, that would be true if someone was rated over 75% and had less than 30 years of active duty. For someone who has more than 34 years of active credited time in service their retirement would be more than 75%. Now, I have not seen where it says the untaxed income is limited to 75%, only that disability pay is maxed at 75%. it may be an interpretation question but i have not seen that either because it probably doesn't happen often.

 

[iamthewalrus016]

Ok, that would be true if someone was rated over 75% and had less than 30 years of active duty. For someone who has more than 34 years of active credited time in service their retirement would be more than 75%. Now, I have not seen where it says the untaxed income is limited to 75%, only that disability pay is maxed at 75%. it may be an interpretation question but i have not seen that either because it probably doesn't happen often.

No one can get greater than 75%. Even someone that serves more than 30 years. 75% is the absolute max.

 

[KDawgie]

You can get greater than 75% but that means not being medically retired

 

[iamthewalrus016]

if they entered service before 1986. but highly unlikely any of those people are still in. even more unlikely those guys are on this forum asking pay questions.

 

[RangerVic]

if they entered service before 1986. but highly unlikely any of those people are still in. even more unlikely those guys are on this forum asking pay questions.

I was just medically retired this FY (2025), Actually 16 Oct 2024. I receive just over 85% of my base pay. Right now I have no tax liability but this month just over $1,800 was placed in my taxable income, though no taxes were taken. I entered in 85. 75% cap was removed with the 2007 NDA.

 

[iamthewalrus016]

I was just medically retired this FY (2025), Actually 16 Oct 2024. I receive just over 85% of my base pay. Right now I have no tax liability but this month just over $1,800 was placed in my taxable income, though no taxes were taken. I entered in 85.

That’s gotta be a combo of reserve time and active time or all reserve time I’m guessing right?

99.99 percent of people retiring today (and I mean in present time) are not in your situation. There’s probably not many flag officers still in that will be in your situation.

Also the 99.99 percent is just a guesstimate. Not scientific at all lol.

 

[RangerVic]

That’s gotta be a combo of reserve time and active time or all reserve time I’m guessing right?

99.99 percent of people retiring today (and I mean in present time) are not in your situation. There’s probably not many flag officers still in that will be in your situation.

Also the 99.99 percent is just a guesstimate. Not scientific at all lol.

Yes, however, flag Officers cannot be medically discharged- I did do that research. I went through my first med board in 2000 as a newly promoted Captain. I’m still trying to figure out if in fact that last 10% should be taxed.

 

[Provis]

Ok, that would be true if someone was rated over 75% and had less than 30 years of active duty. For someone who has more than 34 years of active credited time in service their retirement would be more than 75%. Now, I have not seen where it says the untaxed income is limited to 75%, only that disability pay is maxed at 75%. it may be an interpretation question but i have not seen that either because it probably doesn't happen often.

If your longevity pension is greater than 75% you can't qualify for tax exemption due to combat related conditions. The reason is that there are 2 requirement for tax exemption. One is a combat related condition found unfitting by the PEB AND your that your total DOD% must be higher than your earned longevity pension. Since your longevity pension is higher than the DOD% of 75% max you can't get be afforded tax exemption status.

 

[iamthewalrus016]

Yes, however, flag Officers cannot be medically discharged- I did do that research. I went through my first med board in 2000 as a newly promoted Captain. I’m still trying to figure out if in fact that last 10% should be taxed.

I'd like to add... that flag officers can be medically retired. Their determination is just made by the service secretary. The same rules apply if a medical officer placed on a MEB/PEB.

 

[RangerVic]

I'd like to add... that flag officers can be medically retired. Their determination is just made by the service secretary. The same rules apply if a medical officer placed on a MEB/PEB.

correct, need authorization by the under sec. like everything in the military- there is always an opportunity for a waiver.

 

[RangerVic]

If your longevity pension is greater than 75% you can't qualify for tax exemption due to combat related conditions. The reason is that there are 2 requirement for tax exemption. One is a combat related condition found unfitting by the PEB AND your that your total DOD% must be higher than your earned longevity pension. Since your longevity pension is higher than the DOD% of 75% max you can't get be afforded tax exemption status.

Do you have a citation for that? I have read the law, I have read the NDAA, and the FMR. Nothing caps excluded FITW.

The FMR V7B, Ch 24 states the following.
2.3.4. A member who retires for disability may choose a multiplier based on years of service, in accordance with subparagraphs 2.3.1, 2.3.2, or 2.3.3, as applicable, or based on the disability percentage awarded by the Service. However, if the member chooses the Service disability percentage, then the percentage is limited to no more than 75 percent.

IAW 26 USC 104 (a) 4/5, just references amounts received by an individual as disability income attributable to injuries...There is no mention of a cap. This is also a copy of the Internal Revenue code. (IRC 104).

So, whether someone chooses to accept 75% or longevity pay above 75% it is still considered a disability pay because the individual was discharged under chapter 61 disability. Therefore, either selection is disability pay (75% or above), IAW IRC 104 or USC is considered disability income with no 75% cap.

The 75% cap was put in place when regular retirement pay was caped at 75% so there was no way anyone would have been in a situation where disability % was higher tan regular retirement.
This is why I am looking for a citation that precludes non FITW above 75%.

​

 

[RangerVic]

Found it.​

10 U.S.C. §1403. Disability retired pay: treatment under Internal Revenue Code of 1986:​

That part of the retired pay of a member of an armed force, computed under formula No. 1 or 2 of section 1401, or under section 1402(d) or 1402a(d) of this title on the basis of years of service, which exceeds the retired pay that he would receive if it were computed on the basis of percentage of disability is not considered as a pension, annuity, or similar allowance for personal injury, or sickness, resulting from active service in the armed forces, under section 104(a) of the Internal Revenue Code of 1986.

I think this section lays it out. Any amount computed above what would have been computed on the basis of disability is not considered an allowance for personal injury resulting from active service in the armed forces as referenced in the above post (104a). I guess you can't win them all.