H.R. 7027 — Restore Veterans’ Compensation Act of 2026

This section eliminates recoupment of separation pay under 10 U.S.C. §1174 (for involuntary separations), severance or readjustment pay, voluntary separation incentives under §1175, or voluntary separation pay and benefits under §1175a from VA disability compensation to which a member later becomes entitled. (Thus, members receiving such separation payments receive full VA disability compensation without offset.) The section further revises recoupment of those separation payments from retired or retainer pay as follows: (1) limits recoupment to the net amount after federal income tax withholding at the flat rate; (2) caps deductions at 25% of monthly retired or retainer pay unless the member requests an accelerated rate (with Secretary of Defense consultation on repayment to avoid hardship); (3) delays deductions until 90 days after notice to the member (with clear information on amount and schedule); and (4) authorizes waiver of deductions for financial hardship. Conforming amendments apply these recoupment rules to voluntary separation incentives and voluntary separation pay and benefits; prohibit deductions from disability compensation paid concurrently with retirement under concurrent receipt authorities (§§1413, 1413a); and exempt from repayment members who were retirement-eligible when approved for voluntary separation pay and benefits. Amendments take effect on the first day of the first month after enactment and apply to deductions from retired or retainer pay in that month and subsequent months.