|
12/02/05
DFAS Changes
The following email is courtesy of MG Jim Enney (Ret).
From: James Enney
Sent: Thursday, November 24, 2005 11:52 AM
To: MOAA Benefits Info
Subject: DFAS Changes
I have a question. The latest AF Retiree News reports that DFAS is incorporating VA Concurrent Retirement Disability Payments (CRDP) with regular retired pay into the Retiree Account Statement (RAS) and a single combined amount will be shown on the RAS. Then it points out that some beneficiaries could see a reduction in take home pay because CDRP in regular retired pay incurs tax withholding at the same rate as the rest of their retired pay. My question is who decided on this change to now have disability pay subject to income tax, DOD, IRS, Congress, or all of the above?
James C. Enney, Maj Gen, USAF (Ret)
From: Benefits Information
To: James Enney
Sent: Monday, November 28, 2005 9:56 AM
Subject: RE: DFAS Changes
Dear General Enney,
Thank you for contacting MOAA. I can certainly understand your confusion regarding disability pay and retirement pay now that the retiree is receiving one check. In your email you asked, "who decided on this change to now have disability pay subject to income tax?". Disability pay is still tax free DFAS addresses this confusion in their letter to retirees, "Your VA disability payment continues to be provided by the VA, and it comes to you tax-free." The retiree needs to understand that their disability pay has not changed, their payments from the VA will continue unless re-reviewed.
The only change is that the retiree is now having their retirement pay taxed at the proper tax bracket. Previously CRDP (reinstatement of retirement pay) was taxed automatically at 10%, now a retiree is having their CRDP pay taxed at 18% (or whatever their proper tax bracket is). This increased in taxable income may result in a slight reduction in pay. Last year this reduction was taken out by the IRS when taxes were filed, meaning a retiree never realized the reduction. Now the reduction is being displayed on the RAS (Retiree Account Statement) which is causing some confusion.
Concurrent Disability and Retirement Pay (CRDP) is not disability pay, it is a reinstatement of retirement pay, since retirement pay is taxed CRDP is also taxed. DFAS addresses this confusion in their letter to retirees, "Your VA disability payment continues to be provided by the VA, and it comes to you tax-free." I am sorry for any confusion DFAS has caused, I hope this email helps to clarify the situation. If you are still confused please feel free to respond.
Sincerely,
Bret Shea
Member Service Representative
MOAA
|
