August 7, 2026
Mr. Gallego introduced the following bill; which was read twice and referred to the Committee on Veterans’ Affairs
To amend title 10, United States Code, to eliminate the recoupment of separation pay, special separation benefits, and voluntary separation incentive payments from members of the Armed Forces who subsequently receive disability compensation under laws administered by the Department of Veterans Affairs and to impose limitations on the authority of the Secretary of Defense to recoup such pay from members who subsequently receive military retired or retainer pay.
Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,
Section 1. Short title
This Act may be cited as the Restore Veterans’ Compensation Act of 2026
.
Sec. 2. Recoupment of separation pay, special separation benefits, voluntary separation incentive, and voluntary separation pay and benefits from members of the Armed Forces
(a) Separation pay upon involuntary discharge or release from active duty and special separation benefits
(1) Elimination of recoupment from members receiving veterans disability compensation
Paragraph (2) of section 1174(h) of title 10, United States Code, is amended to read as follows:
(2)
(A)
A member who has received separation pay under this section, or severance pay or readjustment pay under any other provision of law, based on service in the Armed Forces shall not be deprived, by reason of the receipt of such separation pay, severance pay, or readjustment pay, of any disability compensation to which the member is entitled under the laws administered by the Department of Veterans Affairs.
(B)
The amount of disability compensation to which a member may be entitled under the laws administered by the Department of Veterans Affairs may not be reduced on account of the receipt of separation pay, severance pay, or readjustment pay.
(2) Recoupment from members receiving retired or retainer pay limited to net amount of separation pay
Section 1174(h)(1) of title 10, United States Code, is amended by inserting before the period at the end the following: , less the amount of Federal income tax withheld from the separation pay, severance pay, or readjustment pay (such withholding being at the flat withholding rate for Federal income tax withholding, as in effect pursuant to regulations prescribed under chapter 24 of the Internal Revenue Code of 1986)
.
(3) Percentage limitations on recoupment from members receiving retired or retainer pay and recoupment process
Section 1174(h)(1) of title 10, United States Code, as amended by paragraph (2), is further amended—
(A)
by inserting (A)
after (1)
;
(B)
by striking shall specify, taking into account the financial ability of the member to pay and avoiding the imposition of undue financial hardship on the member and member’s dependents,
and inserting (subject to subparagraph (B)) shall specify
; and
(C)
by adding at the end the following new subparagraphs:
(B)
The amount deducted under subparagraph (A) from a payment of retired or retainer pay may not exceed 25 percent of the amount of the member’s retired or retainer pay for that month unless the member requests deductions at an accelerated rate. The Secretary of Defense shall consult with the member regarding the repayment rate to be imposed, taking into account the financial ability of the member to pay and avoiding the imposition of an undue hardship on the member and the member’s dependents.
(C)
The deduction of amounts from the retired or retainer pay of a member under this paragraph may not commence until the date that is 90 days after the date on which the Secretary of Defense notifies the member of the deduction of such amounts under this paragraph. Any notice under this subparagraph shall be designed to provide clear and comprehensive information on the deduction of amounts under this paragraph, including information on the determination of the amount and period of installments under this paragraph.
(D)
The Secretary of Defense may waive the deduction of amounts from the retired or retainer pay of a member under this paragraph if the Secretary determines that deduction of such amounts would result in a financial hardship for the member.
(b) Conforming amendments
(1) Voluntary separation incentive
Section 1175(e) of title 10, United States Code, is amended—
(A)
in paragraph (3)(A)—
(i)
by striking the first sentence and inserting the following new sentence: Subsection (h) of section 1174 of this title shall apply to any member who has received the voluntary separation incentive and who later qualifies for retired or retainer pay under this title or for disability compensation under the laws administered by the Department of Veterans Affairs.
; and
(ii)
in the second sentence, by striking the deduction required under the preceding sentence
and inserting the deduction from the member’s retired or retainer pay
; and
(B)
by striking paragraph (4) and redesignating paragraph (5) as paragraph (4).
(2) Voluntary separation pay and benefits
Subsection (h) of section 1175a of title 10, United States Code, is amended to read as follows:
(h) Coordination With Retired or Retainer Pay and Disability Compensation
(1)
Subsection (h) of section 1174 of this title shall apply to any member who receives voluntary separation pay under this section and who later qualifies for retired or retainer pay under this title or title 14 or for disability compensation under the laws administered by the Department of Veterans Affairs.
(2)
No deduction shall be made from the disability compensation paid to an eligible disabled uniformed services retiree under section 1413, or to an eligible combat-related disabled uniformed services retiree under section 1413a of this title, who is paid voluntary separation pay under this section.
(3)
The requirement under this subsection to repay voluntary separation pay following retirement from the Armed Forces does not apply to a member who was eligible to retire at the time the member applied and was accepted for voluntary separation pay and benefits under this section.
(c) Effective date and application of amendments
The amendments made by this section shall take effect on the first day of the first month beginning on or after the date of the enactment of this Act. In the case of deductions to be made from the retired or retainer pay of members of the uniformed services, the amendments shall apply to that month and subsequent months.