Separation incentives are basically buyouts offered to employees to leave before the time of retirement. The person is usually offered compensation based on the years of service rendered. Members of the military sometimes avail themselves of this voluntary separation incentive (VSI) as an early retirement. There are many issues related to this and how it works. This article provides answers to some of the most commonly asked questions about issues related to this. Are voluntary separation incentives considered taxable income for local wages taxes apart from being subjected to federal and state taxes? VSI is not considered an income; it is considered an annuity. The IRS does tax it. However, as per the US code 10 USC 1175 Voluntary separation incentive, municipal taxing is not applicable to it. More information is available at the Department of Defense which confirms that it is not an income but an annuity. Is there any way in repaying Voluntary Separation Incentive from retirement pay if the repayment causes financial hardship? At first you should contact the DFAS and explain to them that if they remove it from your retirement you will face severe financial hardship and might lose your home too. You should send a letter listing your assets and liabilities as well as any financial statements. You may come to a settlement with DFAS to reduce or completely waive the repayment if you can prove the adverse impact on your livelihood. Perhaps a payment plan can be worked out in which the DFAS can recover a part of the debt while easing the financial pressure on you to some extent. If you fail to come to an agreement, you may inform the same facts to your Congressman. A letter should be attached and sent to the Congressman detailing why you think the debt should be reduced or waived. The Congressman might be able to influence the DFAS to consider your case. Can a soldier exit the Army with an honorable discharge? The best way of leaving the military is trying to get a voluntary separation. It usually results in an honorable discharge which is better than a dishonorable discharge. Some examples of voluntary discharge are: Conscientious objector, hardship, pregnancy, early release to further education. If none of these is helpful to you, you should better complete your term in the military to avoid the only other option, which is involuntary separation. If a service man accepted an early retirement program from the Army in 1994, can the status be changed to full retirement? If you had participated in VSI or SSB, you cannot return to the military and ask for full retirement benefits. The packages offered in the early 90’s were not retirement packages, but basic buyouts for service men who had less than 20 years in the military. If you had signed up for something other than VSI or SSB, then you will have to approach for retirement benefits with the agreement in hand. Can VSI be garnished under section 1175? To some extent it can be garnished. Further details on this can be found in the Department of Defense Financial management Regulation Vol 7C § 010303 "010303. Voluntary separation incentive varies from person to person. Usually, the amount is based on how many years the service member has been in the force. If you need more information or are faced with a situation where you find yourself confused, ask a military lawyer to decide the best course of action.
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