CRDP

[respikes1]

Based on the qualifications for CRDP I am eligible. I am a Chapter 61 retiree as of 04/04/2018 and I was rated at 50% as of 10/15/2014 by the VA and my current rating is 80%. I have two questions. My first question is will my retro pay for CRDP be backdated to 10/15/2014 (VA 50% rating) or the effective date of my retirement 04/04/2018? My next question is my current retirement pay is TAX EXEMPT, will my retro pay from CRDP be taxed exempt ?


Thanks,

Ron

 

[RonG]

I just answered your question on the other web site where you posted earlier today.

Re: Questions
“My first question is will my retro pay for CRDP be backdated to 10/15/2014 (VA 50% rating) or the effective date of my retirement 04/04/2018? My next question is my current retirement pay is TAX EXEMPT, will my retro pay from CRDP be taxed exempt ?”

1. One has to be retired for CRDP eligbilty. CRDP is the restoration of waived retired pay (now better explained as the mechanism/law that allows payment of both retired pay and VA comp— my opinion). You would be eligible for CRDP once you retired. It is odd that you have not been paid CRDP in real time if eligible since 50% is the threshold. Of course a reserve retirement has the age requirement.
CH 61 retirees eligible for CRDP must wait until they met the age requirement for RC retirement pay, if applicable.

Your 50% VA rating pre-dates the actual retirement date.

2. CRDP can be no more than the dollar amount of the longevity portion of retirement; it does not restore the waived disability retirement portion that was waived. Additionally, residual retired pay left after the VA offset reduces the amount of CRDP payable to a CH 61 retiree.

3. If the longevity portion of your retirement was tax exempt, I suspect corresponding CRDP would be tax exempt as well since CRDP is retired pay.
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Back to the tax question.

General.

DoD 7000.14-R Financial Management Regulation Volume 7B, Chapter 64 * October 2018

640503. Taxability
The CRDP entitlement represents the ability of an eligible military retiree to receive both retired pay and VA disability compensation without regard to the waiver and offset requirement in 38 U.S.C. §§ 5304 and 5305. Accordingly, payments of CRDP are payments of retired pay and are taxable.

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IRS Publication 525 (2017) [provides an exception]

Military and Government Disability Pensions

Certain military and government disability pensions aren't taxable.

Conditions for exclusion. Do not 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: a. Results directly from armed conflict, b. Takes place while you are engaged in extra-hazardous service, c. Takes place under conditions simulating war, including training exercises such as maneuvers, or d. Is caused by an instrumentality of war. 4. You would be entitled to receive disability compensation from the Department of Veterans Affairs (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.

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When in doubt, confer with a tax professional.

Regards,
Ron

Your post from May 2018 explains your situation and the reason for retro CRDP:

"I am a Chapter 61 retiree (injured on AD) with a total of 38 years (13yrs AD and 25yrs Army Reserve Time). DFAS advised me that they need my "reserve retirement orders" and a "Reduced Age/ 90 Day Drop Letter" before they can verify if I am eligible for CRDP."

That explains the retro CRDP from DFAS (pending) as you appear to have qualified for a RC retirement and attained the age requirement for pay."

 

[Hawkeye99]

4. You would be entitled to receive disability compensation from the Department of Veterans Affairs (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.

Does this exemption mean that the CH 61/CRDP vet's mil retired income is exempted up to the same dollar amount that the vet is entitled to receive in VA disability compensation?

 

[RonG]

Does this exemption mean that the CH 61/CRDP vet's mil retired income is exempted up to the same dollar amount that the vet is entitled to receive in VA disability compensation?

That is an excellent question concerning the precise quotation from IRS Pub 525.

My interpretation of that portion of the IRS publication is that it applies when there is no restoration of waived retired pay via CRDP (e.g., 40% VA comp and below which does meet the CRDP requirement). From a tax return preparation site: “If you’re receiving disability compensation from the Department of Veterans Affairs (VA), your military retirement pay is reduced by the amount of VA disability compensation you receive, unless you qualify for an offset because your disability rating is 50 percent or more...”

In cases where a retiree has a VA offset due to receipt of VA compensation, the taxable income is reduced on the RAS and would not be shown on a 1099 at the end of the year. However, in CRDP cases, some or all of the retired pay is restored and is included in the gross. CRDP does not restore the disability portion of waived retired pay.

I am not a CH 61 and have seen only a couple of RAS for retirees having that type retirement. It would seem that the 1099 produced by DFAS each year would take into account any amounts determined to be non-taxable.

DFAS provides the following on the subject:
TDRL/PDRL Exemption: If you retired under a disability law (Temporary Disability Retirement List or Permanent Disability Retirement List), your retired pay will be fully non-taxable if your pay is calculated based upon your military (not VA) disability percentage and you meet one of the following conditions:
—You were in the military or under a contractual obligation to join the military on September 24, 1975, or
—Your military disability rating is combat-related
The welcome letter you received from DFAS when you first retired indicates whether your pay is computed using your military percentage of disability or your years of service.

VA Compensation Deduction: For most members who retired under a non-disability law, retired pay taxable income is simply reduced by the amount of any VA compensation received. For members who retired under the Temporary Disability Retired List or the Permanent Disability Retired List, retired pay taxable income is reduced by whichever of the following is greater:

The amount of VA compensation received or
A tax-exempt amount of gross pay determined by the following formula:
Step 1:
Military (not VA) disability percentage: %
x (times) Active Duty pay at the time of retirement:
= (equals) Initial amount of tax-exempt gross pay

Step 2:
Initial amount of tax-exempt gross pay:
x (times) applicable Cost-Of-Living-Adjustment (COLA): %
= (equals) Current tax-exempt gross pay

This information is reported by DFAS on your 1099-R.

Combat Related Special Compensation (CRSC): These payments are non-taxable.

Concurrent Retirement Disability Payments (CRDP): CRDP is a restoration of your retired pay, not a separate entitlement. Therefore, if your retired pay is taxable so is any CRDP payments you receive. If your retired pay is non-taxable, your CRDP is also non-taxable.

Former Spouse Deductions: The retiree is not liable for taxes on payments made to their former spouse. The Uniformed Services Former Spouse Protection Act defines community property payments established in accordance with a court order and approved by the DFAS legal department as pre-tax deductions.

Ref: https://www.dfas.mil/retiredmilitary/manage/taxes/isittaxable.html


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As mentioned previously, when in doubt, confer with a tax professional. Although my background was in finance both in the Army and as a civilian, I am not a tax professional. Taxpayers may ask tax questions by calling the IRS toll-free customer service line at 1-800-829-1040 for individual tax issues or 1-800-829-4933 for business-related tax issues. TTY/TDD users may call 1-800-829-4059 to ask tax questions or to order forms and publications.

Ron