Sponsor
Ruben Gallego
Senator · D-AZ
Senator · D-AZ
The bill protects veterans and service members from losing VA disability benefits and limits how aggressively separation pay can be recouped (with notice and hardship relief), but those protections reduce and slow government recoveries and introduce tax-withholding and budgetary uncertainties.
Veterans with VA disability compensation will not lose that compensation because of receiving separation, severance, or readjustment pay — protections prevent offsets/deductions against certain VA disability benefits.
Members and retirees will generally pay lower net recoupment amounts because recoupment is reduced by federal income tax withheld from separation pay (using the chapter 24 withholding amount).
Monthly recoupment taken from retired or retainer pay is capped at 25% of each month's pay unless the member requests faster deductions, protecting monthly income flows for retirees.
Tax-withholding-based reduction (using chapter 24 flat withholding) may under- or overstate actual tax liability, causing some members or the government to bear shortfalls or produce over-crediting—introducing potential inequities and administrative reconciliation burdens.
Capping monthly deductions at 25% will slow the pace of government recovery of separation/severance pay, lengthening collection periods and potentially increasing administrative costs and outstanding balances.
Waiver authority for financial hardship, while protective for individuals, may further reduce recoveries and increase net costs to the Treasury.
Based on analysis of 2 sections of legislative text.
Prevents VA disability cuts for separation/severance pay and limits recoupment from retired/retainer pay to net separation pay with a 25% monthly cap and hardship waivers.
Official title: Amend title 10, United States Code, to eliminate the recoupment of separation pay, special separation benefits, and voluntary separation incentive payments from members of the Armed Forces who subsequently receive disability compensation under laws administered by the Department of Veterans Affairs and to impose limitations on the authority of the Secretary of Defense to recoup such pay from members who subsequently receive military retired or retainer pay.
Introduced August 7, 2026 by Ruben Gallego · Last progress August 7, 2026
Amends federal law to stop Veterans Affairs disability compensation from being reduced when a service member received separation, severance, or readjustment pay, and limits how much retired or retainer pay the Defense Department can recoup to collect that overpayment. It caps monthly recoupment at 25% of retired/retainer pay (unless the member requests faster repayment), requires consultation and clear notice before deductions, delays deductions 90 days after notice, allows hardship waivers, and makes related changes for voluntary separation payments. The changes apply beginning the first day of the first month that starts on or after enactment and affect deductions from retired or retainer pay from that month forward.