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Frequently Asked Questions


VSI/SSB Recoupment

If you receive Voluntary Separation Incentive (VSI) or Special Separation Bonus (SSB) and later qualify for retired or retainer pay, you will be required to repay the full gross VSI/SSB paid to date. You will receive a notification letter 90 days before your recoupment begins.

Repayment will be made through monthly deductions from your retired pay at a rate of 40 percent of your monthly pay.  Lump sum repayments are not allowed, but you can request that we increase your monthly repayment amount by sending us a signed written request.

The Department of Veterans Affairs (VA) does not recoup VSI but will recoup SSB. Additionally, VA compensation is deducted from VSI. If the VA is also recouping SSB payments, we will coordinate with them to avoid over-collection.  We deduct your VA award from your gross retired pay, and then withhold 40 percent of that amount for recoupment purposes. You may send us any documentation you have showing the amount the VA collected.


At time of VSI/SSB payment(s)

At the time the member was paid VSI/SSB, they received a certain dollar amount and the government, withheld taxes and sent a portion of the VSI/SSB payment to the Internal Revenue Service (IRS) on behalf of the member as required by law. The IRS used the taxes paid on the member’s behalf to figure their overall tax liability in the year of the VSI/SSB payment(s).  The member’s personal circumstances at the time of the VSI/SSB payment(s) determined whether they received a refund of any taxes withheld and paid to the IRS. 

At time of recoupment from retired pay

The law requires the gross amount of the VSI/SSB payment(s) to be recouped through a reduction in military retired pay. The required gross recoupment includes the amount paid to the member plus the amount withheld and paid to the IRS.  The VSI/SSB recoupment reduces the members retired pay before taxes are computed on their current retired pay.  As a result, the overall taxable retired pay income is reduced by the amount of the member’s monthly recoupment.  This ensures that the member is not taxed twice.

The laws requiring recoupment can be located at 10 U.S.C. §§ 1174, 1174a.  The Department of Defense (DoD) Financial Management Regulation (FMR), Volume 7B, Chapter 4 further explains the law and the requirement to recoup gross amount of VSI/SSB as well as the required rate of recoupment.

We cannot change previously issued 1099R forms, nor can we recover any funds sent to the IRS to cover the taxes on the payments already made to you.

For Example:  If you received a gross separation payment for $60,000 less Federal Income Tax Withholding of $12,000, you would have received a net check for $48,000. We will recoup the gross amount of $60,000.

If you become eligible for $2,500 per month from retired pay, less a VA waiver of $200 you would have an adjusted gross taxable income of $2,300. We recoup at the rate of 40% of gross income, which would be $920.

Your adjusted gross taxable income will be reduced by the amount being recouped ($2,300 less $920) leaving a new taxable income amount of $1380.


This is not a debt, but rather a recoupment. We are required by law to recoup these separation payments; therefore, we cannot consider waivers.


You can request a more lenient repayment plan if you are experiencing financial hardship. We will consider your application for hardship if the recoupment prevents you from meeting the costs necessary for essential subsistence. These essentials include food, housing, public utilities, clothing, transportation, and medical care.

Your notification letter will include a link to the Financial Statement of Debtor and a set of instructions. Please follow the instructions and return the completed Financial Statement of Debtor within 45 days of receipt of the letter to the address below.

Defense Finance and Accounting Service
U.S. Military Retired Pay
8899 E 56th Street
Indianapolis IN 46249-1200

Defense Finance and Accounting Service
U.S. Military Annuitant Pay
8899 E 56th Street
Indianapolis IN 46249-1300

You can submit the statement any time your financial status changes and results in a hardship.

If financial hardship is found, the recoupment rate will be reduced based on your financial condition. The minimum approved financial hardship recoupment rate is 10 percent. Please note that you are required to submit a renewal financial hardship application annually. Your application must be received within 45 days prior to the 1 year expiration date of your previous application  or deductions will automatically revert to the standards 40 percent recoupment rate.

Page updated Sept 21, 2021