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Voluntary Separation Incentive

Separation incentives are basically buyouts offered to employee's to leave before they are eligible for retirement. The person is generally compensated based on the years of service. Many military members choose to take a voluntary separation incentive (VSI) as an early retirement. There are many questions related to VSI and how it works. Take a look at five of the top VSI questions answered by Experts.

If voluntary separation incentive payments are subject to federal and state taxes, are they also considered taxable income for local wage taxes?

VSI is considered an annuity, not an income. The IRS can and will tax Voluntary Separation Incentives. However, based on the information in the US code: 10 USC 1175 Voluntary separation incentive The code makes it obvious that local municipal taxing is not appropriate. You can also learn more by reading this information from the Department of Defense which confirms that VSI is not an income but an annuity. http://comptroller.defense.gov/fmr/12/12arch/12_17.pdf

Is there any recourse in repaying Voluntary Separation Incentive from retirement pay if the repayment will create financial hardships?

Your first step will need to be contacting the DFAS and explain to them that if they remove the incentive pay from your retirement, you will face extreme hardship and possibly lose your home as a result. You need to send a letter with a list of your assets and liabilities, along with any financial statements. It may be possible to work out an agreement with DFAS to reduce or waive the repayment if you can show the impact on your livelihood. Perhaps you could work out a payment plan that would ease the financial strain on you but still allow DFAS to recoup some of the debt. If you cannot come to an agreement with DFAS, send the same information to your Congressman. Attach a letter to the Congressman stating why you need the debt reduced or waived. It may be possible that the Congressman's influence may encourage DFAS to work with you.

Is there any way for a soldier to exit the Army with an honorable discharge?

The best attempt of leaving the military will be attempting to receive a voluntary separation. A voluntary separation will generally result in an honorable discharge which is more favorable than a dishonorable discharge. There are a few examples of a voluntary separation which are; Conscientious objector, hardship, pregnancy, early release to further education. If none of these situations will work for you, you should consider staying in the military until your term is over to avoid the only option left, involuntary separation.

If a person accepted an early retirement program from the Army in 1994, can they change their status to acquire full retirement?

If you chose to participate in VSI or SSB, you are no longer eligible to return to the military and seek full retirement benefits. The packages that were offered in the early 90's were not retirement packages, but basic buyouts for people who had less than 20 years in the military. If you had signed up for something other than VSI or SSB, you will need to have the agreement on hand if you try to go for your retirement benefits.

Can voluntary separation incentive under section 1175 be garnished?

To an extent, it is possible for VSI payments can be garnished. You can read more on this topic in the Department of Defense Financial management Regulation Vol 7C § 010303

"010303. Garnishments. Garnishment orders remain in effect. Transfer garnishment cases for VSI recipients to the DFAS-Cleveland Center for administration."

Voluntary Separation Incentive packages vary as much as the individuals who take them. Usually, the amount of the VSI is based on how many years of service the service member has gained. To learn more about the VSI, you can ask a Military Lawyer for insightful answers.
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