Restore Veterans’ Compensation Act of 2026

Key Points

• The bill stops the government from clawing back separation pay, severance pay, or readjustment pay from veterans who later qualify for VA disability compensation. Right now, veterans who receive these payments and later get approved for disability benefits have their monthly checks reduced until the separation pay is fully repaid. This bill ends that practice entirely.
• For veterans who receive military retirement pay, the bill changes the math on what gets recouped. Instead of paying back the full gross amount of separation pay, veterans would only need to repay the net amount they actually took home after federal income taxes were withheld. This fixes a longstanding problem where veterans were forced to repay money they never received.
• The bill caps monthly recoupment from retirement pay at 25% of the veteran's check, requires 90 days' written notice before any deductions begin, and gives the Secretary of Defense authority to waive the entire debt if repayment would cause financial hardship.
• The changes apply to voluntary separation incentive payments and voluntary separation pay as well, not just involuntary separation pay. This broadens protections to cover nearly all types of military transition payments.
• The bill takes effect on the first day of the first month after enactment. For veterans already having deductions taken from their retirement pay, the new rules (including the 25% cap and hardship waiver) would apply starting that month going forward.