How involuntary separation pay works
Members who are separated involuntarily after at least 6 but fewer than 20 years of active service can receive a one-time payment. The formula is set in federal law (10 U.S.C. 1174):
| Type | Formula | Typical reasons |
|---|---|---|
| Full | 10% × years of service × 12 × monthly basic pay | Not selected for promotion twice, force reductions, other involuntary separations of members fully qualified to stay |
| Half | 5% × years of service × 12 × monthly basic pay | Some separations for failing weight, fitness or other standards, and some at the member's request in place of other action |
| None | Not paid | Voluntary separation, end of enlistment when you could have reenlisted, misconduct |
Years are counted in whole years, and a part year of six months or more counts as a full year. Basic pay is your monthly rate on the day you separate. Your service decides whether you qualify and at which rate; the reason code on your separation paperwork is what matters.
Example
An E-6 separated involuntarily after exactly 10 years earns $4,759.50 a month in 2026 basic pay. Full separation pay is 10% × 10 × 12 × $4,759.50 = $57,114.00. Selling back 20 days of leave adds $4,759.50 ÷ 30 × 20 = $3,173.00, for $60,287.00 before tax.
Selling back unused leave
When you separate or retire, you can be paid for unused leave at one day of basic pay (monthly basic pay ÷ 30) for each day. There is a career limit of 60 days of sold leave, with some exceptions for leave lost in combat zones. Allowances such as BAH and BAS are not included. The alternative is terminal leave: taking the days off at the end of your service while still being paid in full, including allowances, which is usually worth more.
Taxes and VA disability
Both payments are taxable income. Federal tax is usually withheld at the flat 22% rate for lump-sum payments, and state tax depends on your state. Separation pay earned in a combat zone month can be tax-free under the combat zone exclusion.
If you later receive VA disability compensation for service before your separation, VA withholds your monthly payments until the separation pay is recovered. The amount recovered is the separation pay minus the federal tax that was withheld from it. Your separation pay is not reduced; your VA payments start later.
Common questions
Is there separation pay for voluntary separation? Not in general. Services sometimes offer voluntary separation pay during force reductions, with its own rules and amounts.
Does separation pay affect retirement if I join the Reserve? If you later qualify for retired pay, it is reduced until the separation pay is recovered, under a separate rule from the VA one.
When is it paid? With your final pay, usually within a month or two after separation.
