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Q.: How exactly is CRDP taxed? I am a retired Marine. Each month I receive my military pension plus CRDP. It's my understanding that CRDP is taxed, but what is the mechanism for that tax? On my DFAS retired statement, I have income tax withheld, but when I get my 1099 at the end of the year, it lists my income as only my pension (and not CRDP). So is CRDP even reported to the IRS? If not, should I be reporting it as income that's not on my 1099? I have always been curious how CRDP is taxed because I just don't see it. Thanks for considering my question.
Great question! And you're not the only one who's been confused about this. Concurrent Retirement and Disability Pay (CRDP) can be hard to wrap your head around, especially when it comes to taxes and how they're reported. Let me try to break your question down.
CRDP is taxable. It’s included on Page 1 of your Retiree Account Statement (RAS) in your gross pay. Since it is included in your gross pay, you do not need to report it as separate income. That said, I do not know your whole situation, so talk to a tax professional.
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What Is CRDP?
CRDP allows you to receive both your military retirement pay/pension and your Department of Veterans Affairs disability payment at the same time if you served 20 years or more and retired with a VA disability rating of 50% or more.
Military retirees have to give up (or waive) part of their retirement pay, dollar for dollar, to get VA disability pay. CRDP allows eligible retirees to receive both when they have more than a 50% VA disability rating. The CRDP part of your pay looks like it's added back in, but it's technically still part of your taxable retirement pay. That's where it gets confusing.
How Is CRDP Taxed?
The short version is that CRDP is taxed like your regular military retirement pay. It's not a separate pot of money with its own tax rules. It gets rolled into your total taxable retirement income.
According to the Defense Finance and Accounting Service (DFAS), “CRDP is a restoration of your retired pay, not a separate entitlement. Therefore, if your retired pay is taxable, so are any CRDP payments you receive. If your retired pay is non-taxable, your CRDP is also non-taxable.”
When you look at your RAS, and "CRDP" is on a separate line, you may think it’s a separate payment, but it’s not. It's just a label to show how much of your retirement pay is being "restored" to you because of your VA rating.
From a tax point of view, the IRS doesn't see CRDP. It sees that you're getting a certain amount of military retirement pay, which shows up on your 1099-R.
Why Doesn't CRDP Show on My 1099-R?
That's where it throws people off. The amount on your 1099-R is your total taxable military retirement pay, which already includes CRDP. There's no separate line or mention of it, because the IRS does not consider it a separate income source. It's just part of your overall retirement pay that you're taxed on. So yes, it's taxed, but it doesn't show up as its own item. It's just listed on your RAS for transparency, not because it's taxed differently.
Do I Need to Report CRDP Separately on My Taxes?
No. You're doing it right as long as you're using the numbers from your 1099-R. You do not need to go in and add CRDP somewhere else on your tax return. If you did that, you'd be overreporting your income and could end up paying too much in taxes.
Hope this helps clear things up. Thanks for asking a question that so many other retirees are wondering about, too.
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