Military Law

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Army Separation Pay

Severance pay for Military members involuntarily separated from the army.

Army separation pay is similar to severance pay in the civilian workforce. Military members may receive this one-time, lump sum payment when they involuntarily separate from service. Separation pay is available to servicemen or women who have been in the military for more than six years but do not qualify for retirement benefits. This benefit is only available to active duty service members.

Qualifying for Army separation pay

Service members must fulfill basic criteria to qualify for separation pay. These requirements include

  • Finishing your first enlistment term or obligated service period
  • You have served in the Army for 6 - 20 years
  • Your separation is involuntary
  • You are ineligible for retirement benefits
  • Your separation is not under adverse or dishonorable conditions

Documenting eligibility qualifications

If you are transitioning to Reserve duty or leaving active duty service, it is important to document your eligibility for involuntary separation pay. While you are still on active duty, fill out DA Form 3340 and submit it to the proper authority. This Request for Reenlistment or Extension in the Regular Army serves as proof that the Army denied your continuation of active duty.

To qualify for full separation pay, you must also prepare and submit a Ready Reserve service agreement. Use DA Form 4187, Personnel Action Request, to document your request.

Disqualifications

There are several reasons a service member may be disqualified from receiving separation pay. Members that choose not to reenlist or leave active duty during their first enlistment term are rendered ineligible. Dismissal due to court-martial, less than honorable conditions, unsatisfactory performance or misconduct also disqualifies members from receiving separation pay.

Disqualification due to Temporary Early Retirement Authority

If a military member with between 15 - 20 years is involuntarily separated, they may be eligible for early retirement under Temporary Early Retirement Authority (TERA). This benefits enlisted personnel or officers who are dismissed due to military downsizing or promotion non-selection. It allows them to receive the same retirement benefits as military members with 20 plus years of service, although a slight pay reduction may apply.

Soldiers cannot claim TERA benefits and receive separation pay. Qualifying for early retirement makes them ineligible for the involuntary separation payment.

Involuntary separation payment levels

There are two payment levels for involuntary separation: full and half. In addition to fulfilling basic eligibility criteria, each level carries additional eligibility requirements.

Full pay

Soldiers who receive Full Separation Pay must be fully qualified for retention at the time of their dismissal. They must receive an Honorable discharge. They may be let go due to Army downsizing or exceeding high-year tenure for their rank.

Army members who qualify for Full Separation Pay must also agree to serve at least three years in the Ready Reserve. Service options for Army personnel include the

  • National Guard
  • Army Reserve
  • Individual Mobilization Augmentee program
  • Individual Ready Reserve

The three-year service term begins on the date of separation unless the service member has an existing service obligation. In these cases, the three-year term begins the day after their current service obligation ends.

Half pay

The requirements are not as stringent for Army soldiers who receive Half Separation Pay. Eligible service members must receive an Honorable or General Discharge. Some common reasons for involuntary separation include failing to meet fitness or weight standards, losing security clearance or involuntary discharge due to parenthood. 

Calculating separation pay

Soldiers who are eligible for Full Separation Pay receive 10 percent of their annual base pay per year of service. Soldiers who are eligible for Half Separation Pay receive five percent of their annual base pay per year of service. Include partial years in your calculations.

Separation pay formula

Full pay: (Monthly base pay x 12) x (number of years served) x (.10) = involuntary separation pay

Half pay: Divide your full pay result by two or substitute .05 for .10 in the equation above.

Paying taxes on involuntary separation pay

Taxes on involuntary separation payments are handled roughly the same way as taxes on military bonus pay. The federal government withholds 20 - 25 percent of the payment in taxes.

Your income adjustments, deductions, and exemptions should remain the same. Your withholding amount will be higher, and separation pay can bump you into a higher tax bracket for the year. You will receive a refund for any overpayment when you file your taxes.

Repaying separation pay

Some soldiers are eligible to join the National Guard or Army Reserves, even if they have already received separation pay. If you retire from the Guard or Reserves after involuntary separation, you must repay any separation pay you received. Each payment made reduces your taxable income by the same amount.

Defense Finance and Accounting Service (DFAS) will withhold 40 percent of your monthly retirement check until the full amount is repaid. There is no option to pay a lump sum, but you can ask DFAS to withhold more. You must make the request must in writing.

Withholding disability benefits

If you receive separation pay and later receive disability benefits, Veterans Affairs (the VA) is legally required to withhold your disability compensation until the separation pay is repaid. However, the VA only recoups the amount you actually received. For example, if you paid $6,000 in taxes on a $30,000 involuntary separation payment, the VA will only collect $24,000 of your disability compensation.

Special types of separation pay

The Army also issues separation pay under special circumstances. These circumstances include sole survivorship discharges and disability severance pay.

Sole Survivorship Discharge

If you are the only surviving child in your family, you may be able to request a sole survivorship discharge. Your parent(s) or sibling(s) must have served in the Armed forces and meet one of the following conditions.

  • They were killed or died of wounds, disease, or an accident
  • They were captured or are missing in action
  • They are permanently 100 percent disabled or hospitalized on a continual basis and therefore cannot be gainfully employed

Additionally, their death, status, or disability cannot be the result of willful neglect or intentional misconduct, and it cannot have occurred during an unauthorized absence.

The six-year minimum service requirement is waived for personnel requesting a sole survivorship discharge. You are entitled to full separation payment based on your actual years of active service.

Disability Severance Pay

The Department of Defense (DoD) may issue disability severance pay to soldiers who meet all three of the following criteria.

  • They are unfit for duty
  • They have fewer than 20 years of service
  • Their disability rating is below 30 percent

Soldiers who receive disability severance pay cannot return to active duty or apply for retirement later. If the VA determines your disability and service are related, you may be eligible for monthly disability compensation. However, if the VA compensation and severance pay are for the same disability, the VA may withhold the amount of your severance pay before you start receiving monthly payments.

Disability severance pay is calculated differently than involuntary separation pay. You will receive two months of basic pay for each year of service, including active duty and inactive duty points. Your total number of service years cannot exceed 19. If you incurred your disability in a combat zone in the line of duty, you must have served at least six years. All other service members have a three-year minimum requirement.

Involuntary separation can be a challenge. It is a major change in lifestyle, location, and employment. Ask an Expert to help you prepare for your involuntary separation pay. They can help you determine your eligibility for full or half pay, and explain when repayment is required.

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