TDRL/PDRL federal income tax exclusion for disability retirement pay.

A

apotheman

PEB Forum Regular Member
Registered Member
I've searched for an answer to this question and it still seems to be nebulous.

If someone (who will apply for CRSC soon) is on the PDRL but the PDRL retirement orders do not specify 'combat-related' but the MEB summary specifically states that the disability retirement was due to an exacerbation of a 'combat-incurred service connected' disability, can they claim a federal tax exclusion under the TDRL/PDRL tax exclusion provision for all that pay that is deemed 'combat-incurred and service connected'?

It seems the IRS does not use a CRSC determination by a military service to grant this tax exclusion per IRS publication 525 as it specifically mentions CRSC as 'another' payment that is tax excluded.

all inputs greatly appreciated and hope they will also help members on this PEB/MEB forum.
 
apotheman said:
I've searched for an answer to this question and it still seems to be nebulous.

If someone (who will apply for CRSC soon) is on the PDRL but the PDRL retirement orders do not specify 'combat-related' but the MEB summary specifically states that the disability retirement was due to an exacerbation of a 'combat-incurred service connected' disability, can they claim a federal tax exclusion under the TDRL/PDRL tax exclusion provision for all that pay that is deemed 'combat-incurred and service connected'?

It seems the IRS does not use a CRSC determination by a military service to grant this tax exclusion per IRS publication 525 as it specifically mentions CRSC as 'another' payment that is tax excluded.

all inputs greatly appreciated and hope they will also help members on this PEB/MEB forum.
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They are totally separate and both binding. If PEB designates condition is unfitting and combat related then chapter 61 pension exempt from federal income taxes. You can't get that outcome any other way to include a secondary condition. If approved for CRSC any CRSC amount received is exempt from federal income taxes.
 
That is what I tried to tell the MEB at USPHS but said “we don’t make combat distinctions for disability. That is what CRSC is for and you have to apply after you retire.”

How can I get this determination now that I am retired?
 
A Physical Evaluation Board is responsible for making the administrative determination whether a service member’s disability compensation will be excluded from Federal gross income for tax purposes in accordance with 26 U.S.C. § 126. See Dept. of Defense Instruction 1332.18, Disability Evaluation System (Nov. 10, 2022), ¶ 10.2.

After separation, your only recourse is to submit an application to the military correction board for your particular former service department, such as the Army Board for Correction of Military Records, seeking correction of your military records to reflect the proper administrative determination. To do this, you would need to present clear and convincing evidence that the PEB that adjudicated your case leading to your disability retirement committed an error or injustice by failing to properly designate the combat-related status of your disability. To do that, you’d need to show contemporaneous records establishing your eligibility for the combat related designation under DoDI 1332.18 and the implementing service regulation, such as Army Reg. 635-40. For example, if the injury were incurred on an obstacle course but the PEB did not pick up on that, you’d need to present to the correction board medical records or other military records reflecting the injury was sustained in that manner and that the DoDI and regulation provide that injuries sustained during training on an obstacle course are incurred under conditions simulating war and are combat related. Buddy statements may corroborate contemporaneous medical or personnel records, but alone will not typically convince a correction board to grant relief.

Read DoDI 1332.18 and the appropriate implementing service regulation which lay out the requirements for combat related eligibility to see if your situation falls within those requirements.
 
Sir, I cannot thank you enough for your wise advice. Unfortunately some of us combat vets, we medically retired from a uniformed service with limited to no combat experience despite our military combat experience and they use the fact that they don’t have to follow DoD regs (as is the case for USPHS as they are HHS) and deny me my benefits despite my Dod combat related disability as a medic in the Dod
 
I will give you some advice for later on as you transition out. No one in the civilian world cares if you are a " veteran of combat arms " vs a " combat veteran".. be proud of what you did regardless if you experienced direct combat vs simulation. You served your country and that is something to be proud of.

All the best,

Ben
 
Blk42 said:
I will give you some advice for later on as you transition out. No one in the civilian world cares if you are a " veteran of combat arms " vs a " combat veteran".. be proud of what you did regardless if you experienced direct combat vs simulation. You served your country and that is something to be proud of.

All the best,

Ben
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Appreciate it! I was prior USAF deployed to Iraq and Afghanistan and transitioned to USCG to get back into operational missions where I fell apart. Coast guard does not have its own medical service (tells you how much they care about retention in a suck it up buttercup culture) and they detail USPHS officers to “Own” medical issues.
I was naive as to what the coast guard did and omg- these are some of the toughest servicemen and women I have ever met.
 
Provis said:
They are totally separate and both binding. If PEB designates condition is unfitting and combat related then chapter 61 pension exempt from federal income taxes. You can't get that outcome any other way to include a secondary condition. If approved for CRSC any CRSC amount received is exempt from federal income taxes.
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These are definitely two of the top ten most misunderstood items on this board.
 
apotheman said:
I've searched for an answer to this question and it still seems to be nebulous.

If someone (who will apply for CRSC soon) is on the PDRL but the PDRL retirement orders do not specify 'combat-related' but the MEB summary specifically states that the disability retirement was due to an exacerbation of a 'combat-incurred service connected' disability, can they claim a federal tax exclusion under the TDRL/PDRL tax exclusion provision for all that pay that is deemed 'combat-incurred and service connected'?

It seems the IRS does not use a CRSC determination by a military service to grant this tax exclusion per IRS publication 525 as it specifically mentions CRSC as 'another' payment that is tax excluded.

all inputs greatly appreciated and hope they will also help members on this PEB/MEB forum.
Click to expand...
apotheman said:
I've searched for an answer to this question and it still seems to be nebulous.

If someone (who will apply for CRSC soon) is on the PDRL but the PDRL retirement orders do not specify 'combat-related' but the MEB summary specifically states that the disability retirement was due to an exacerbation of a 'combat-incurred service connected' disability, can they claim a federal tax exclusion under the TDRL/PDRL tax exclusion provision for all that pay that is deemed 'combat-incurred and service connected'?

It seems the IRS does not use a CRSC determination by a military service to grant this tax exclusion per IRS publication 525 as it specifically mentions CRSC as 'another' payment that is tax excluded.

all inputs greatly appreciated and hope they will also help members on this PEB/MEB forum.
Click to expand...
"Hello, same problem here. I was also in the USPHS However, I had to retire early because of medical reasons and received a Permanent Disability Retirement Letter (PDRL) because of combat injuries from serving in the Air Force. According to DFAS Defense Finance and Accounting Service > RetiredMilitary > manage > taxes > isittaxable
 
Attached is Keeter v. IRS. Keeter served in the U.S Army and injured during basic training. He never filed for VA disability. Because he met the requirements of 26USC 104 (b)(2)(d), the tax court approved his pay as non-taxable. Keeter stated to the court that he was told that if he filed for VA disability, he would most likely be approved. The tax court and judge agreed. His case has nothing to do with combat related disabilities. His tax exempt status is approved because of on application he would be entitled to receive VA compensation. I believe this a 48 year error since the Tax Reform Act was passed in 1976. Service members who are approved for an unfitting condition and disability rating must be approved by the rules governing 38 CFR Part 4 which is stated in 10 USC 1216a. I think you win whether it is combat related or not. I have requested a congressional inquiry into this matter. But IRS has to provide specific examples for each type of retiree to include those whose years of service percentage is more than their disability percentage. This is why non-combat disability severance pay is excluded after SM is approved for VA disability.
 

Attachments

From what I gather, the IRS may not specifically use a CRSC determination to grant the tax exclusion you're referring to. However, it's possible that the specific language in your MEB summary could play a significant role in determining eligibility for the exclusion.
If you're still looking for more information, it might be worth consulting with a tax professional or financial advisor who also specializes in military benefits.
In the meantime, if you're interested in earning some extra cash, you might want to check out these legit games that pay real money instantly. They can be a fun way to pass the time and potentially boost your income a bit.
 
apotheman said:
I've searched for an answer to this question and it still seems to be nebulous.

If someone (who will apply for CRSC soon) is on the PDRL but the PDRL retirement orders do not specify 'combat-related' but the MEB summary specifically states that the disability retirement was due to an exacerbation of a 'combat-incurred service connected' disability, can they claim a federal tax exclusion under the TDRL/PDRL tax exclusion provision for all that pay that is deemed 'combat-incurred and service connected'?

It seems the IRS does not use a CRSC determination by a military service to grant this tax exclusion per IRS publication 525 as it specifically mentions CRSC as 'another' payment that is tax excluded.

all inputs greatly appreciated and hope they will also help members on this PEB/MEB forum.
Click to expand...

Here is the reply from the USCG Attorney

By law, PHS (and Coast Guard) retired pay disability payments are not taxable if the service determines that the disability is combat-related. Combat-related has an expanded definition but most importantly, the determination of whether or not a disability is combat-related is made by the service’s medical evaluation board when the member is found to be disabled and no longer fit for continued service. Our records show that when the PHS medical evaluation board made their determination, they did not determine that your disabilities were combat related.

Please note that the service’s determination of combat-related based on the member’s disabilities is completely unrelated to the combat-related decision made about the member’s VA claim and eligibility for Combat-Related Special Compensation (CRSC). They are two separate issues, two separate determinations.


IRS Publication 525 (2023) contains the criteria for disability exclusions on page 18 in the section titled Military and Government Disability Pensions. Again, because your service did not determine that your disability was combat-related, we cannot exclude your PHS retired pay from Federal Income Tax Withholding.
 
Provis said:
They are totally separate and both binding. If PEB designates condition is unfitting and combat related then chapter 61 pension exempt from federal income taxes. You can't get that outcome any other way to include a secondary condition. If approved for CRSC any CRSC amount received is exempt from federal income taxes.
Mochilovo said:
From what I gather, the IRS may not specifically use a CRSC determination to grant the tax exclusion you're referring to. However, it's possible that the specific language in your MEB summary could play a significant role in determining eligibility for the exclusion.
If you're still looking for more information, it might be worth consulting with a tax professional or financial advisor who also specializes in military benefits.
In the meantime, if you're interested in earning some extra cash, you might want to check out these legit games that pay real money instantly. They can be a fun way to pass the time and potentially boost your income a bit.
Click to expand...
You are correct.
Here is the reply from the USCG Attorney

By law, PHS (and Coast Guard) retired pay disability payments are not taxable if the service determines that the disability is combat-related. Combat-related has an expanded definition but most importantly, the determination of whether or not a disability is combat-related is made by the service’s medical evaluation board when the member is found to be disabled and no longer fit for continued service. Our records show that when the PHS medical evaluation board made their determination, they did not determine that your disabilities were combat related.

Please note that the service’s determination of combat-related based on the member’s disabilities is completely unrelated to the combat-related decision made about the member’s VA claim and eligibility for Combat-Related Special Compensation (CRSC). They are two separate issues, two separate determinations.


IRS Publication 525 (2023) contains the criteria for disability exclusions on page 18 in the section titled Military and Government Disability Pensions. Again, because your service did not determine that your disability was combat-related, we cannot exclude your PHS retired pay from Federal Income Tax Withholding.
Click to expand...
 
IRS Publication 525 page 18 Non-Taxable Income

Military and Government Disability Pensions​

Certain military and government disability pensions aren't taxable.

Service-connected disability.

You may be able to exclude from income amounts you receive as a pension, annuity, or similar allowance for personal injury or sickness resulting from active service in one of the following government services.
  • The armed forces of any country.
  • The National Oceanic and Atmospheric Administration.
  • The Public Health Service.
  • The Foreign Service.

Conditions for exclusion.

Don’t include the disability payments in your income if any of the following conditions apply.
  1. You were entitled to receive a disability payment before September 25, 1975.
  2. You were a member of a listed government service or its reserve component, or were under a binding written commitment to become a member, on September 24, 1975.
  3. You receive the disability payments for a combat-related injury. This is a personal injury or sickness that:
    1. Results directly from armed conflict;
    2. Takes place while you're engaged in extra-hazardous service;
    3. Takes place under conditions simulating war, including training exercises such as maneuvers; or
    4. Is caused by an instrumentality of war.
  4. You would be entitled to receive disability compensation from the VA if you filed an application for it. Your exclusion under this condition is equal to the amount you would be entitled to receive from the VA.

Pension based on years of service.

If you receive a disability pension based on years of service, in most cases, you must include it in your income. However, if the pension qualifies for the exclusion for a service-connected disability (discussed earlier), don't include in income the part of your pension that you would have received if the pension had been based on a percentage of disability. You must include the rest of your pension in your income.
 
Hello,

A couple comments without considering the different scenarios above.

Reference: “From what I gather, the IRS may not specifically use a CRSC determination to grant the tax exclusion you're referring…”

CRSC is not retired pay. It is a special, nontaxable payment . A 1099 or W2 is not issued for CRSC.
It replaces some or all of the retired pay waived for receipt of VA comp. The waived retired pay also is nontaxable since it no longer exists via the waiver. Applications for CRSC can be submitted only post-retirement.

Note: Not all service-connected disabilities qualify as Combat Related.

Ron
 
IRS doesn't restrict exclusion to combat related disabilities for disability severance pay and disability retirement. The St. Clair case changed the game for disability severance pay. IRS initial position was a lump sum disability severance payment was not a pension or annuity and couldn't receive the same treatment as disability retirement. The federal court disagreed and granted tax free treatment for non combat disability severance payments if they receive VA compensation for the same disabilities. Please review IRS Congressional letter dated November 2000.
 

Attachments

Hi Guys,
A Physical Evaluation Board (PEB) is the group that decides whether your disability compensation qualifies to be excluded from federal taxes under 26 U.S.C. § 126. (See DoD Instruction 1332.18, Disability Evaluation System, ¶ 10.2.)


If you’ve already separated from service, your only path forward is to apply to your branch’s correction board for example, the Army Board for Correction of Military Records and ask them to update your records with the correct decision. To win, you’ll need strong, clear evidence that the PEB got it wrong by not marking your disability as combat-related.


That means finding records from the time of your injury showing you met the combat-related criteria under DoDI 1332.18 and your branch’s rules (like Army Reg. 635-40). For example, if you were injured on an obstacle course and they overlooked it, you’d want medical or personnel records proving it happened there and that the rules say obstacle course injuries count as “conditions simulating war” and are therefore combat-related. Buddy statements can help back this up, but without official records, they usually won’t be enough.


It’s worth taking the time to read DoDI 1332.18 and your service’s regulation so you know exactly what counts and can see if your situation fits.
 
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