The overall military disability system works the same for both active duty and reservists, but it’s different if the veteran put more than 20 years in the military. I discussed the system for active duty members with more than 20 years in the military last week, so check out that blog for those specifics.
As for reservists:
All reservists do not receive any retirement benefits from the DoD until they reach 60 years of age. This age is decreased by three months for every three-month period spent mobilized, but can never lower past age 50. The amount of benefits they receive are based on the number of points they have accrued from the amount of activity they did as a reservist.
If the reservist put more than 20 qualifying years (20 years with at least 50 retirement points/year) of service in, they will receive their full retirement benefits from the DoD once they reach 60 years of age. For the time in between their retirement from the reserves and their 60th birthday, a reservist will not receive any benefits from the DoD unless he has a disability.
If he has a disability, the DoD will give him a military disability rating and give him the same benefits as all other disabled American veterans. Once he reaches 60 years of age, however, the DoD will then pay him either the standard reservist retirement benefits he has earned or the disability benefits, but he won’t receive both, whichever is higher.
So if Susy retires from the reserves after 20 qualifying years at the age of 40 with a disability, she will receive standard disability compensation from the DoD, and nothing else, for 20 years (until she turns 60 or her qualifying age). At that time, she will either switch to her retirement pay or continue with her disability pay, whichever is more. So if she receives $500/month for her disability, and then starts receiving $800/month for retirement pay, her disability payments will stop and she’ll just receive the $800/month for her retirement.
VA disability compensation is exactly the same for every veteran, no matter how long they are in the military or whether they were active duty or reserves. VA disability benefits are solely based on the rating that they give the conditions. If a veteran with 20 years has a 20% rating, and a veteran with 5 years also has a 20% rating, they will both get the exact same compensation since they received the same 20% rating.
Now when you combine DoD compensation with VA compensation, any compensation you receive from the VA for a disability is subtracted from the amount of monetary benefits you receive from the DoD.
So if you receive $400/month from the DoD for anything, and then the VA starts giving you $300/month for disability, the DoD amount will decrease to $100/month (400 – 300 = 100). You still get the larger amount, but the VA will pay a part of it instead of the DoD giving it all.
While confusing, this is actually very beneficial to you since any money you receive from the DoD is taxed, while any money you receive from the VA is not. So instead of getting taxed on $400, you’ll only be taxed on $100. You still get the other $300, but it isn’t taxed. A pretty good perk, if you ask me.
This will happen any time you are receiving money from both the VA and the DoD.