CRDP vs CRSC: Which Pays More After Taxes?
A retired O-5 with a 70% combat-related VA rating can gain $4,384 per year by switching from CRDP to CRSC. Here is the math.
If you retired after 20 years in uniform and carry a VA disability rating above 50%, you are already receiving Concurrent Retirement and Disability Pay. You probably never applied for it. CRDP is automatic once DFAS receives your VA rating notification. But automatic does not mean optimal, and in our view, most eligible retirees are leaving thousands of dollars on the table every year by never examining the alternative.
That alternative is Combat-Related Special Compensation, and the difference between the two programs comes down to one word: taxes.
How the VA Waiver Creates the Problem
When a military retiree receives VA disability compensation, federal law requires a dollar-for-dollar reduction in retired pay called the VA waiver. A retired O-5 earning $4,594 per month in retired pay with a 70% VA rating of $1,791.65 per month would have retired pay cut by that same $1,791.65. Two programs exist to restore that lost income: CRDP and CRSC. They restore the same gross amount but treat taxes differently.
What Is CRDP?
CRDP restores the VA waiver amount back into your retired pay, dollar for dollar. Eligibility requires 20 or more years of service and a VA rating of 50% or higher. No application is needed. The catch: the restored amount is taxable income. It shows up on your 1099-R.
What Is CRSC?
CRSC replaces the VA waiver with a separate, tax-free payment from DFAS. Eligibility requires a VA disability rating of 10% or higher where the rated disabilities are combat-related (direct combat, hazardous duty, instrumentality of war, or simulated war conditions). You must apply through your service branch using DD Form 2860. Processing takes 6 to 12 months depending on the branch. Army applications go to HRC Fort Knox, Navy to CORB at Washington Navy Yard, and Air Force to AFPC Randolph AFB.
One important update: following the Supreme Court decision in Soto v. United States, CRSC payments now begin from the date the completed application is received, not the date of approval.
The After-Tax Math: O-5, 20 Years, 70% VA Rating
Here is where the numbers get concrete. We believe this comparison is the most useful way to understand the difference between the two programs. All figures use 2026 military pay tables and 2026 VA disability rates (2.8% COLA effective 12/1/2025). Tax estimates assume a single filer taking the standard deduction.
| Category | CRDP | CRSC |
|---|---|---|
| Retired pay (gross) | $4,594/mo | $2,802.35/mo |
| VA compensation (tax-free) | $1,791.65/mo | $1,791.65/mo |
| CRSC payment (tax-free) | — | $1,791.65/mo |
| Total gross monthly | $6,385.65 | $6,385.65 |
| Taxable annual income | $55,128 | $33,628 |
| Federal tax estimate | ~$12,128 | ~$3,635 |
| Virginia state tax | ~$756 | $0 |
| After-tax annual income | ~$58,335 | ~$62,719 |
The after-tax difference: approximately $4,384 per year. Over a 20-year retirement horizon, that totals $87,680 or more in additional after-tax dollars before any investment return.
Why Virginia Makes the Gap Wider
Virginia grants a $40,000 annual subtraction on military retirement income under Code Section 58.1-322.02, subdivision 18. The age-55 requirement was removed effective tax year 2024. Under CRDP, the O-5’s $55,128 in taxable retired pay minus the $40,000 subtraction leaves $15,128 subject to Virginia tax. Under CRSC, the taxable retired pay drops to $33,628, which is entirely shielded by the $40,000 subtraction. Virginia state tax: zero. This interaction between CRSC’s tax-free status and Virginia’s subtraction is a planning detail that generic military finance content misses.
When CRDP Wins Instead
CRSC is not always the better choice. The CRSC payment equals the VA disability amount attributable to combat-related conditions specifically. If only 20% of a 70% rating qualifies as combat-related, the CRSC amount drops to the compensation level for a 20% rating ($347.48 per month), while CRDP still restores the full 70% waiver. The after-tax math flips.
CRDP also wins for retirees in states with no income tax, such as Florida or Texas, where the state tax advantage of CRSC disappears. The federal savings alone may not overcome a partial combat-related determination.
The bottom line: the higher your percentage of combat-related disability, the stronger the case for CRSC. If your combat-related percentage is low, CRDP likely pays more after taxes.
What to Do Next
Retirees eligible for both programs may switch between CRDP and CRSC during the DFAS open season, typically in January. The election applies for the full calendar year.
Three action steps:
- Pull your VA rating decision letter. Identify which conditions are combat-related.
- Run the math for your rank, years, and rating. The CRS report on concurrent receipt explains the underlying law. Your specific tax situation depends on filing status, total household income, and state of residence.
- If CRSC wins, file DD Form 2860 with your service branch before the January open season. With 6 to 12 months of processing time, filing now positions you for the next election cycle.
The math is straightforward. DFAS just does not do it for you.
Tax calculations in this post are for illustration only. Actual tax liability depends on total household income, filing status, deductions, and state of domicile. Consult a tax professional for your specific situation.
Related reading:
- Roth vs. Traditional IRA: Which Is Right for You?
- Tax-Loss Harvesting: A Year-Round Strategy
- How to Read Your 401(k) Statement
Ferrante Capital LLC is a registered investment adviser. Information presented is for educational purposes only and does not constitute investment advice, a solicitation, or a recommendation to buy or sell any security. All investing involves risk, including the possible loss of principal.
FC and its principals may hold positions in securities or asset classes discussed in this article. This analysis is for educational purposes only and does not constitute a recommendation to buy, sell, or hold any security.
Forward-looking statements reflect Ferrante Capital’s current analysis and involve assumptions and estimates. Actual results may differ materially. Past performance is not indicative of future results.
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