n. Income of Recently Discharged Veterans (continued)

Analysis:  Voluntary Separation Payments

2 types of voluntary separation payments are used to facilitate military downsizing:

(1)  Special Separation Benefit (SSB)

·   A one-time lump sum

·   Taxable in the year received, and

·    Treat the same as any substantial cash reserve.

(2) Voluntary Separation Incentive (VSI)

·   Annual payments

·   Taxable in the year received

·   Include in effective income

·   Calculated by multiplying the veteran’s years of service times 2

·   Requires a minimum of 6 years service (equates to a minimum of 12 years annual payments).

If the veteran receives both VSI and VA disability compensation payments, the VSI is reduced by the amount of disability compensation.  However, if the disability compensation is related to an earlier period of service and the VSI a later period of service, the VSI is not reduced by the amount of disability compensation.

·   VSI is reduced by the amount of any base pay or compensation a member receives for active or reserve service, including inactive duty training.

The veteran can designate a beneficiary for VSI payments in the event of death.