HR7027-119

What This Bill Does

The Restore Veterans' Compensation Act of 2026 changes title 10 recoupment rules for service members who received separation pay, severance pay, readjustment pay, special separation benefits, voluntary separation incentives, or voluntary separation pay and later qualify for VA disability compensation or retired or retainer pay. The bill states that receipt of those separation-related payments cannot deprive a member of VA disability compensation and that VA disability compensation may not be reduced because of those payments. For retired or retainer pay recoupment, the amount owed is reduced by federal income tax withheld at the flat withholding rate. Monthly deductions from retired or retainer pay may not exceed 25 percent unless the member asks for faster deductions. The Defense Secretary must consult with the member on repayment rates, consider ability to pay and hardship for the member and dependents, give clear notice at least 90 days before deductions begin, and may waive deductions if they would cause financial hardship. It also updates voluntary separation incentive and voluntary separation pay coordination rules and states that repayment of voluntary separation pay after retirement does not apply to a member who was eligible to retire when the member accepted the payment. The changes take effect the first month after enactment and apply to that month and later months.

Who Benefits and How

Disabled veterans, uniformed services retirees, combat-related disabled retirees, and families of affected service members benefit because VA disability compensation is protected from offset and retired-pay recoupment is capped, delayed, explained, and waivable for hardship. Veterans who received separation or voluntary separation payments benefit from clearer coordination rules. Military legal assistance offices and veterans service organizations benefit from more protective statutory standards to advise members.

Who Bears the Burden and How

Defense Department pay officials, DFAS payroll staff, VA compensation staff, and service personnel offices must update repayment calculations, tax-offset rules, monthly caps, notices, hardship consultations, waiver procedures, and coordination with retired or retainer pay. Federal taxpayers and military retirement accounts may bear costs when disability compensation is no longer reduced and hardship waivers are granted. Members still subject to retired-pay recoupment must understand notices and repayment schedules.

Key Provisions

• Prohibits reducing VA disability compensation because of separation, severance, or readjustment pay.
• Reduces recoupment amounts by federal income tax withheld from separation-related pay.
• Caps deductions from retired or retainer pay at 25 percent per month unless the member requests faster repayment.
• Requires Defense Department consultation on ability to pay and hardship.
• Requires clear 90-day notice before retired-pay deductions begin.
• Authorizes hardship waivers of retired-pay deductions.
• Updates voluntary separation incentive and voluntary separation pay coordination rules.