--- title: "Part VI, Subpart ii, Chapter 3, Section B Withholding and Restoration of Benefits Associated With Receipt of Drill Pay" document: "M-21-1" section: "Part VI, Subpart ii, Chapter 3, Section B" canonical: "https://veteranai.co/va-regulations/m21-1/vi.ii.3.b-withholding-and-restoration-of-benefits-associated-with" source: "https://www.knowva.ebenefits.va.gov/system/templates/selfservice/va_ssnew/help/customer/locale/en-US/portal/554400000001018/content/554400000179813/M21-1-Part-VI-Subpart-ii-Chapter-3-Section-B-Withholding-and-Restoration-of-Benefits-Associated-With-Receipt-of-Drill-Pay" updated: "2026-09-07T14:37:22.056899Z" --- April 21, 2025 ### VI.ii.3.B.1.a. Determining the Amount of the Withholding When a Veteran chooses to keep drill pay and waive Department of Veterans Affairs (VA) benefits, * withhold benefits at the same rate VA was paying the Veteran on the last day of the fiscal year in which the Veteran received drill pay, and * pay the Veteran the difference between this rate and the rate in effect on the date the withholding begins. (In most cases, there will be no difference.) **Exceptions:** * If, on the last day of the fiscal year in which the Veteran received drill pay, the Veteran * was **_not_** receiving VA benefits, follow the instructions in M21-1, Part VI, Subpart ii, 3.B.1.g * was receiving benefits at the rate specified by [38 CFR 3.665(d)]() because the Veteran was incarcerated, follow the instructions in M21-1, Part VI, Subpart ii, 3.B.1.i, or * was receiving VA compensation based on a temporary 100-percent disability rating under [38 CFR 4.29]() or [38 CFR 4.30](), follow the instructions in M21-1, Part VI, Subpart ii, 3.B.1.e. * If the actual dates on which the Veteran attended drills/training are known, withhold benefits at the same rate VA was paying the Veteran on those dates. **Notes:** * Claims processors may **_not_** use the Veterans Information Solution (VIS) to determine the actual dates on which a Veteran attended drills/training. The columns of the table referenced in [M21-1, Part VI, Subpart ii, 3.A.1.h](), * display the number of days of drills and/or active duty training for which a Veteran received drill pay during a given month, and * do not show the _dates_ the Veteran attended drills/training. * There is no requirement to issue a notice of proposed adverse action before adjusting a Veteran's award to reflect receipt of drill pay if a notice of proposed adverse action accompanied the _VA Form 21-8951, Notice of Waiver of VA Compensation or Pension to Receive Military Pay and Allowances,_ when VA sent it to the Veteran for completion. * The Hines Information Technology Center (ITC) included a notice of proposed adverse action with all _VA Forms 21-8951_ that it sent to Veterans for fiscal years 2015 and later. **Reference:** For examples of the policy expressed in this block, see [M21-1, Part VI, Subpart ii, 3.C](). ### VI.ii.3.B.1.b. Determining the Effective Date of the Withholding On February 25, 2016, regional offices (ROs) were notified of a change in the procedure for handling a Veteran’s decision to keep drill pay and waive VA benefits. Under the new procedure, VA _retroactively_ withholds benefits based on a Veteran’s receipt of drill pay, effective the first day of the current fiscal year, instead of withholding benefits _prospectively_ (from a future date). **Exception:** M21-1, Part VI, Subpart ii, 3.B.1.f-h, describe circumstances under which it is _not_ possible to withhold benefits effective the first day of the current fiscal year. The retroactive adjustment of a Veteran’s award creates an overpayment in the Veteran’s account. The creation of an overpayment affords the Veteran the opportunity to request a waiver of or make payments toward the resulting debt. Under the old procedure, no overpayment was created, which left the Veteran with no option to mitigate the adverse effect of losing the withheld benefits. Follow the instructions in the table below under **_either_** of the following circumstances: * A drill pay case that an RO had in its inventory as of February 25, 2016, requires notice of proposed adverse action because no notice of proposed adverse action accompanied the _VA Form 21-8951_ that VA sent to the Veteran. * As of February 25, 2016, an RO was awaiting a response to a notice of proposed adverse action involving a drill pay case. | **If …**| **Then …** * notice of proposed adverse action is necessary because no notice of proposed adverse action accompanied the _VA Form 21-8951_ that VA sent to the Veteran, and * notice of proposed adverse action has **_not_** been issued * follow the instructions in the _Veterans Benefits Management System (VBMS) Core User Guide_ for generating a notice of proposed adverse action that proposes to adjust the Veteran’s award based on receipt of drill pay * attach _[VA Form 21-0789, Your Rights To Representation And A Hearing]()_ , to the notice, and * send the notice to the Veteran. * notice of proposed adverse action has already been issued, and * the notice informed the Veteran that the proposed award adjustment would be made from a **_future_** date | unless the Veteran submits evidence showing the proposed action is unwarranted, or requests a hearing within 30 days of the date of the notice, take the following actions after the Veteran responds or has had 65 days to respond to the notice: * withhold benefits in the amount and from the date specified in the notice of proposed adverse action, and * add the following paragraphs to the final decision notice under the heading **What Are Your Options:** _If you are experiencing financial hardship and cannot afford to have your benefits reduced prospectively, please contact us immediately. We will work with you to create a debt and establish a reasonable repayment schedule._ _If you inform us that a financial hardship exists, we will take action to reverse your current adjustment, as indicated in this notification, and will create an overpayment. Once the overpayment is created, you will receive a letter from the Debt Management Center advising you of repayment options._ **Important:** If the Veteran responds to the _final_ decision notice (in writing, in person, or by telephone) by stating that the withholding will create a financial hardship, follow the instructions in the table below. | **Step**| **Action** 1| Establish end product (EP) 290, using the claim label _Drill Pay_. 2| Add the _Hardship_ flash to the Veteran’s corporate record. 3| Undo the previous award adjustment (by removing the previously established withholding for drill pay). 4| Continue the EP at authorization. 5| After the Veteran receives payment for the benefits VA withheld prospectively, adjust the Veteran’s award once again by commencing the withholding for drill pay effective the first day of the current fiscal year. **_ _** **Notes:** * There is no requirement to issue a notice of proposed adverse action before adjusting a Veteran's award to reflect receipt of drill pay if a notice of proposed adverse action accompanied the _VA Form 21-8951_ when VA sent it to the Veteran for completion. * The Hines ITC included a notice of proposed adverse action with all _VA Forms 21-8951_ that it sent to Veterans for fiscal years 2015 and later. ### VI.ii.3.B.1.c. Determining the Date Range for Withholding Benefits When determining the date range during which VA must withhold benefits to offset a Veteran’s receipt of drill pay, count each month – including February – as having **_30 days_**. **Examples:** If award action is taken (under the new procedures that went into effect February 25, 2016) to withhold compensation based on a Veteran’s receipt of drill pay for * 55 days of training * the withholding begins October 1st, and * payment at the full rate resumes November 26th, or * 93 days of training * the withholding begins October 1st, and * payment at the full rate resumes January 4th. **Important:** The provisions of [38 CFR 3.31]() do _**not**_ apply to the _resumption_ of benefits in the examples above. ### VI.ii.3.B.1.d. Handling Advance Notice of a Veteran’s Receipt of Drill Pay When a Veteran notifies VA of receipt of drill pay _in advance_ , it might be impossible to know what the rate of payment will be on the last day of the fiscal year during which the Veteran receives the drill pay. In this case, * withhold benefits at the current rate for the number of days the Veteran expects to receive drill pay, and * begin the withholding effective the date in the LAST PAID DATE field on the CURRENT AND HISTORICAL AWARD INFORMATION page in VBMS. _**Notes**_ : * Do _**not**_ establish an EP to control for correction of the amount of withholding at the end of the fiscal year. * If the rate payable at the end of the fiscal year turns out to be different than the amount VA originally withheld, correct the amount of the withholding **_only if_ **some other reason exists for making a retroactive adjustment covering the period of the withholding. * If the Veteran in this case ultimately receives drill pay for _fewer_ days than initially reported, follow the instructions in M21-1, Part VI, Subpart ii, 3.B.3. **Reference:** For an example of the type of award adjustment described in this block, see [M21-1, Part VI, Subpart ii, 3.C.1.b](). ### VI.ii.3.B.1.e. Temporary 100-Percent Disability Ratings in Effect on the Last Day of the Fiscal Year If a Veteran was receiving VA compensation based on a temporary 100-percent disability rating under [38 CFR 4.29]() or [38 CFR 4.30]() on the last day of the fiscal year in which the Veteran received drill pay, * determine what the Veteran’s disability rating is **_without_** the 100-percent temporary disability rating, and * base the withholding on that disability rating. **Example:** **Scenario:** * A Veteran is 20-percent disabled for a service connected (SC) disorder that required surgery on August 20, 2020. * VA determines the Veteran is entitled to a temporary 100-percent disability rating for two months following surgery. * The Veteran submits _VA Form 21-8951_ in January 2021 showing receipt of drill pay during fiscal year 2020. **Result:** VA bases its withholding on the 20-percent disability rating instead of the 100-percent disability rating in effect on September 30, 2020. ### VI.ii.3.B.1.f. Withholdings That Exceed the Rate of Payment on October 1 Occasionally, VA is unable to adjust a Veteran’s benefits from the standard effective date of October 1st because the rate of payment on October 1st is _less_ than the rate of payment at the end of the prior fiscal year. **Example:** * Based on sustained improvement in an SC disability, VA reduces a Veteran’s combined disability rating from 30 percent to 20 percent, effective October 1, 2020. * In June 2021, the Veteran returns a signed and completed _VA Form 21-8951_ , showing he received drill pay during fiscal year 2020. On the form, the Veteran indicates his desire to waive his VA benefits. Follow the steps in the table below when the rate of payment at the beginning of the current fiscal year is _less_ than the monthly amount VA was paying at the end of the fiscal year during which the Veteran received drill pay. | **Step**| **Action** 1| Identify the most recent award line that shows a monthly rate of payment equal to or exceeding the rate of payment at the end of the fiscal year during which the Veteran received drill pay. 2| Did the Veteran respond to the notice of proposed adverse action that accompanied _VA Form 21-8951_ within 65 days of the date of the notice? * If _yes_ , go to the next step. * If _no_ , go to Step 5. 3| Did the Veteran request a hearing within 30 days of the date of the notice? * If _yes_ , take no further action until _after_ * the hearing is held, and * a decision is made as to whether or not the proposed award adjustment is still warranted. * If _no_ , go to the next step. **Reference:** For more information on handling requests for a hearing under the circumstances described in this step, see [M21-1, Part X, Subpart ii, 3.B.3](). 4| Did the Veteran provide evidence showing VA should _not_ retroactively adjust the award? * If _yes_ , * notify the Veteran of VA’s decision, and * go no further. * If _no_ , go to the next step. 5| * Retroactively reduce the Veteran’s benefits, effective the date of the award line identified in Step 1, by the rate of payment at the end of the fiscal year during which the Veteran received drill pay. * Discontinue the reduction after it has been in place for the same number of days the Veteran received drill pay. 6| Notify the Veteran of the action taken. **_ _** **Important:** If VA is unable to adjust a Veteran’s award to offset receipt of drill pay because it discontinued the Veteran’s award based on return to active duty, do not wait until VA resumes the Veteran’s award following discharge to make the necessary offset in benefits. **References:** For more information on * notifying beneficiaries of the action(s) VA has taken and/or the decision(s) it has made, see [M21-1, Part VI, Subpart i, 1.B]() * handling a case in which a Veteran returns to active duty during a period VA withheld or is withholding benefits due to the Veteran’s receipt of drill pay, see M21-1, Part VI, Subpart ii, 3.B.2.a, and * the application of instructions contained in this block, see [M21-1, Part VI, Subpart ii, 3.C.1.e](). ### VI.ii.3.B.1.g. Actions to Take When the Monthly Rate of Payment at the End of the Fiscal Year Is $0.00 Follow the instructions in the table below when the monthly rate of payment at the end of the fiscal year in which the Veteran received drill pay is $0.00. | **Step**| **Action** 1| Was the Veteran’s monthly rate of payment $0.00 for the _entire_ fiscal year in question? * If _yes_ , take no further action. A withholding of benefits under these circumstances is unnecessary. * If _no_ , go to the next step. 2| Are the dates the Veteran attended drills/training known? * If _yes_ , go to the next step. * If _no_ , go to Step 15. **Note:** Claims processors may **_not_** use VIS to determine the actual dates on which a Veteran attended drills/training. The columns of the table referenced in [M21-1, Part VI, Subpart ii, 3.A.1.h](), * display the number of days of drills and/or active duty training for which a Veteran received drill pay during a given month, and * do not show the _dates_ the Veteran attended drills/training. 3| Was the rate of payment at the beginning of the _current_ fiscal year _less_ than the rate in effect while the Veteran was attending drills/training? * If _yes_ , go to the next step. * If _no_ , go to Step 10. 4| Identify the most recent award line that shows a monthly rate of payment equal to or exceeding the rate in effect during the period the Veteran attended drills/training. 5| Did the Veteran respond to the notice of proposed adverse action that accompanied _VA Form 21-8951_ within 65 days of the date of the notice? * If _yes_ , go to the next step. * If _no_ , go to Step 8. 6| Did the Veteran request a hearing within 30 days of the date of the notice? * If _yes_ , take no further action until _after_ * the hearing is held, and * a decision is made as to whether or not the proposed award adjustment is still warranted. * If _no_ , go to the next step. 7| Did the Veteran provide evidence showing VA should _not_ retroactively adjust the award? * If _yes_ , * notify the Veteran of VA’s decision, and * go no further. * If _no_ , go to the next step. 8| * Reduce the Veteran’s benefits * by the monthly rate of payment in effect during the period the Veteran attended drills/training, and * effective the date of the award line identified in Step 4. * Discontinue the reduction after it has been in place for the same number of days for which the Veteran received drill pay. 9| Notify the Veteran of the action taken and disregard the remaining steps in this table. 10| Did the Veteran respond to the notice of proposed adverse action that accompanied _VA Form 21-8951_ within 65 days of the date of the notice? * If _yes_ , go to the next step. * If _no_ , go to Step 13. 11| Did the Veteran request a hearing within 30 days of the date of the notice? * If _yes_ , take no further action until _after_ * the hearing is held, and * a decision is made as to whether or not the proposed award adjustment is still warranted. * If _no_ , go to the next step. 12| Did the Veteran provide evidence showing VA should _not_ retroactively adjust the award? * If _yes_ , * notify the Veteran of VA’s decision, and * disregard the remaining steps in this table. * If _no_ , go to the next step. 13| Withhold benefits from the first day of the current fiscal year * for the same number of days for which the Veteran received drill pay, and * in an amount equal to the monthly rate of payment in effect during the dates the Veteran attended drills/training. 14| Notify the Veteran of the action taken and disregard the remaining steps in this table. 15| Determine what the Veteran’s monthly rate of payment was on the date _prior_ to the date it was reduced to $0.00. 16| Was the Veteran’s rate of payment at the beginning of the _current_ fiscal year _less_ than the rate identified in Step 15? * If _yes_ , go to the next step. * If _no_ , go to Step 23. 17| Identify the most recent award line that shows a monthly rate of payment equal to or exceeding the rate identified in Step 15. 18| Did the Veteran respond to the notice of proposed adverse action that accompanied _VA Form 21-8951_ within 65 days of the date of the notice? * If _yes_ , go to the next step. * If _no_ , go to Step 21. 19| Did the Veteran request a hearing within 30 days of the date of the notice? * If _yes_ , take no further action until _after_ * the hearing is held, and * a decision is made as to whether or not the proposed award adjustment is still warranted. * If _no_ , go to the next step. 20| Did the Veteran provide evidence showing VA should _not_ retroactively adjust the award? * If _yes_ , * notify the Veteran of VA’s decision, and * go no further. * If _no_ , go to the next step. 21| * Reduce the Veteran’s benefits * by the amount identified in Step 15, and * effective the date of the award line identified in Step 17. * Discontinue the reduction after it has been in place for the same number of days for which the Veteran received drill pay. 22| Notify the Veteran of the action taken and disregard the remaining steps in this table. 23| Did the Veteran respond to the notice of proposed adverse action that accompanied _VA Form 21-8951_ within 65 days of the date of the notice? * If _yes_ , go to the next step. * If _no_ , go to Step 26. 24| Did the Veteran request a hearing within 30 days of the date of the notice? * If _yes_ , take no further action until _after_ * the hearing is held, and * a decision is made as to whether or not the proposed award adjustment is still warranted. * If _no_ , go to the next step. 25| Did the Veteran provide evidence showing VA should _not_ retroactively adjust the award? * If _yes_ , * notify the Veteran of VA’s decision, and * go no further. * If _no_ , go to the next step. 26| Withhold benefits from the first day of the current fiscal year * for the same number of days the Veteran received drill pay, and * in an amount equal to the monthly rate of payment identified in Step 15. 27| Notify the Veteran of the action taken. **_ _** **Important:** * There is no requirement to issue a notice of proposed adverse action before adjusting a Veteran's award to reflect receipt of drill pay if a notice of proposed adverse action accompanied the _VA Form 21-8951_ when VA sent it to the Veteran for completion. * The Hines ITC included a notice of proposed adverse action with all _VA Forms 21-8951_ that it sent to Veterans for fiscal years 2015 and later. * If any of the days the Veteran attended drills/training were non-award days, as defined in [M21-1, Part VI, Subpart ii, 3.A.1.e](), do not include those days when determining the length of time benefits must be withheld. **References:** For more information on * handling requests for a hearing under the circumstances described in the table above, see [M21-1, Part X, Subpart ii, 3.B.3](), and * notifying beneficiaries of the action(s) VA has taken and/or the decision(s) it has made, see [M21-1, Part VI, Subpart i, 1.B](). ### VI.ii.3.B.1.h. Action to Take When Withholding Benefits From the First Day of the Current Fiscal Year Will Affect the Future Rate of Payment If adjustment of a Veteran's award (based on the Veteran's receipt of drill pay), effective the first day of the _current_ fiscal year, cannot be accomplished without affecting the future rate of payment, make the adjustment effective the first day of the _prior_ fiscal year. **Example:** **Scenario:** On October 15, 2021, a Veterans Service Representative (VSR) processes a _VA Form 21-8951_ from a Veteran who received drill pay based on 65 days of training during fiscal year 2020. **Problem:** If the VSR begins the withholding for drill pay effective October 1, 2021 (per the instructions in M21-1, Part VI, Subpart ii, 3.B.1.b), the withholding will continue through a future date (December 5, 2021), thereby affecting the Veteran’s future rate of payment. **Resolution:** The VSR must begin the withholding effective October 1, 2020 (or some later date, if benefits were already withheld from that date). ### VI.ii.3.B.1.i. Actions to Take When a Veteran’s Benefits Are Subject to Reduction/ Withholding Based on Incarceration and Receipt of Drill Pay Follow the instructions in M21-1, Part VI, Subpart ii, 3.B.2.b, when * action to withhold benefits to offset a Veteran’s receipt of drill pay is pending, and * current procedures call for the withholding to occur over a period of time during which the Veteran’s benefits are subject to reduction due to incarceration. Follow the instructions in the table in M21-1, Part VI, Subpart ii, 3.B.1.g, **_starting with Step 2_** , when * action to withhold benefits to offset a Veteran’s receipt of drill pay is pending, and * the monthly rate of payment at the end of the fiscal year in which the Veteran received drill pay has been reduced based on the Veteran’s incarceration. **Important:** For the purpose of adjusting a Veteran’s award based on the circumstances described in the above paragraph, the instructions in Step 15 of the table in M21-1, Part VI, Subpart ii, 3.B.1.g should read: _Determine what the Veteran’s monthly rate of payment was on the date prior to the date it was reduced**based on the Veteran’s incarceration**_. ### VI.ii.3.B.1.j. Action to Take When VA Is/Was Apportioning the Benefits of a Veteran Who Received Drill Pay Follow the instructions in the table below when the adjustment of a Veteran’s award due to receipt of drill pay is necessary and * VA was apportioning the same Veteran’s benefits on the last day of the fiscal year during which the Veteran received drill pay, and/or * the time period over which VA must retroactively withhold benefits to offset the Veteran’s receipt of drill pay overlaps a period during which VA was apportioning the Veteran’s benefits. | **If ...**| **Then ...** VA was apportioning the Veteran’s benefits on the last day of the fiscal year during which the Veteran received drill pay| when retroactively withholding benefits for the number of days the Veteran received drill pay * withhold from the Veteran’s award the amount of benefits VA was paying on the last day of the same fiscal year (**_not_** including the amount of the apportionment), and * reduce the apportionee award over the same time period by the amount of benefits VA was apportioning on the last day of the same fiscal year. **Important:** Issue a notice of proposed adverse action to the apportionee(s) before taking the actions described in the above bullets. **Reference:** For more information on issuing a notice of proposed adverse action, see [M21-1, Part X, Subpart ii, 3.A](). * VA was **_not_** apportioning benefits on the last day of the fiscal year during which the Veteran received drill pay, but * the time period over which VA must now withhold benefits to offset the Veteran’s receipt of drill pay overlaps a period during which VA was apportioning the Veteran’s benefits | follow the procedure outlined in the step-action table in M21-1, Part VI, Subpart ii, 3.B.1.f. ### VI.ii.3.B.1.k. Circumstances Necessitating Revision and Reissuance of a Notice of Proposed Adverse Action _Reissue_ a notice of proposed adverse action (with revision of the amount and/or duration of the withholding, as applicable) if, after issuing the initial notice, but before making the corresponding award adjustment, * the amount that VA must withhold increases, and/or * the number of days VA must withhold benefits increases. **Examples:** * After issuing a notice of proposed adverse action, VA increases the Veteran’s monthly rate of compensation, due to an increase in her combined disability rating, from an effective date **_prior_** to the end of the fiscal year during which the Veteran received drill pay. * After issuing a notice of proposed adverse action, a VSR discovers he misread the number of training days printed on _VA Form 21-8951_. **Notes:** * Follow the instructions in the _VBMS Core User Guide_ to generate the notice of proposed adverse action. Attach _[VA Form 21-0789]()_ to the notice before sending it to the Veteran. * If an RO issues a notice of proposed adverse action to withhold benefits from a specific effective date based on a Veteran's receipt of drill pay, and the RO later decides that the withholding must begin on a different effective date, there is no requirement to issue a revised notice of proposed adverse action, as long as changing the date on which the withholding begins will have no greater adverse impact on the Veteran's benefits. ### VI.ii.3.B.1.l. Making Award Adjustments in VBMS When adjusting a Veteran’s award to reflect receipt of drill pay, follow the instructions in the _VBMS Awards User Guide_. ## 2. Handling Retroactive Award Adjustments After VA Has Withheld Benefits to Offset a Veteran’s Receipt of Drill Pay This topic contains information on handling retroactive award adjustments after VA has withheld benefits to offset a Veteran’s receipt of drill pay, including * actions to take * if a Veteran returns to active duty during a period VA withheld or is withholding benefits, and * when a Veteran’s benefits are subject to reduction/withholding based on incarceration and receipt of drill pay, and * retroactive adjustments that affect the rate of payment at which VA withheld benefits to offset a Veteran’s receipt of drill pay. August 28, 2025 ### VI.ii.3.B.2.a. Actions to Take if a Veteran Returns to Active Duty During a Period VA Withheld or Is Withholding Benefits Follow the instructions in the table below if a Veteran returns to active duty during a period VA withheld benefits due to the Veteran’s receipt of drill pay. | **Step**| **Action** 1| Follow the instructions in [M21-1, Part X, Subpart v, 2.B]() to discontinue benefits effective the date the Veteran returned to active duty. 2| Identify the most recent award line (_prior_ to the date VA discontinued the Veteran’s benefits) that shows a monthly rate of payment equal to or exceeding the rate of payment at the end of the fiscal year during which the Veteran received drill pay. 3| * Establish an EP 600 - _Drill Pay Adjustment_ * add _Drill Pay – Manual Process_ as a tracked item * add _Potential Under/Overpayment_ as a special issue, and * go to the next step. 4| Can all the drill and training days be moved to a period in which the gross compensation amount is greater than or equal to the required adjustment (withhold) amount? * If _yes_ , * inform the Veteran in a notice of proposed adverse action of the new date from which VA intends to withhold benefits to offset the receipt of drill pay, and * after the Veteran responds or has had 65 days to respond to the notice of proposed adverse action, go to the next step. * If _no_ , * for the days in which drill or training days may be moved, follow the procedure in the bullets above, and * for the remaining days, * inform the Veteran in the notice of proposed adverse action that compensation will be withheld for half the withhold rate for double the number of days, and * after the Veteran responds or has had 65 days to respond to the notice of proposed adverse action, go to the next step. **Notes:** * In some cases, it may be necessary to issue a notice of proposed adverse action for a Guard/Reserve Active Service activation period that was previously treated as drill or training pay. In these cases, issue a notice of proposed adverse action for a recalculated number of drill or training days using the procedure in [M21-1, Part VI, Subpart ii, 3.A.4.b](). * Follow the instructions in the _VBMS Core User Guide_ to generate the notice of proposed adverse action. * Attach [_VA Form 21-0789_]() to the notice before sending it to the Veteran. **Reference:** For more information on issuing a notice of proposed adverse action, see [M21-1, Part X, Subpart ii, 3.A](). 5| Did the Veteran respond to the notice of proposed adverse action by requesting a hearing or submitting evidence showing the proposed adjustment would be improper? * If _yes_ , postpone further action until after VA * holds the hearing, and/or * considers the evidence the Veteran submitted. * If _no_ , make the adjustment described in the notice of proposed adverse action. _**Important**_ : If benefits are being withheld at half the withhold rate, as described in Step 4, document the rationale for the half-rate withholding in an annotation on the award document and in a VBMS note.**References:** For more information on * using annotations, see [M21-1, Part II, Subpart ii, 2.A.1.h](), and * adding a VBMS note, see [M21-1, Part II Subpart ii, 2.A.1.c](). **_ _** **Important:** * Do **_not_** wait until VA resumes the payment of benefits to make the offset in benefits necessitated by the Veteran’s receipt of drill pay. * When reinstating benefits, if the Veteran was previously notified that compensation will be withheld for a certain number of drill or training days at a specified rate for a specified fiscal year, then compensation may be withheld as previously notified, even if this requires prospective (future) withholding dates. Any additional adjustment actions require a new notice of proposed adverse action. **Reference:** For an example of the application of instructions contained in this block, see [M21-1, Part VI, Subpart ii, 3.C.1.f](). ### VI.ii.3.B.2.b. Actions to Take When a Veteran’s Benefits Are Subject to Reduction/ Withholding Based on Incarceration and Receipt of Drill Pay Follow the instructions in the table below if a Veteran’s benefits are subject to reduction under [M21-1, Part VI, Subpart iii, 1.A.1.c](), because the Veteran was incarcerated, and * VA withheld benefits to offset the Veteran’s receipt of drill pay during a period of time that overlaps the period of time during which VA must now reduce the Veteran’s benefits due to incarceration, or * action to withhold benefits to offset the Veteran’s receipt of drill pay is pending and current procedures call for the withholding to occur over a period of time during which the Veteran’s benefits are subject to reduction due to incarceration. **Important:** The instructions in the table below were written under the assumption that VA has already informed the Veteran (in the notice of proposed adverse action referenced in Step 17 of the table in [M21-1, Part VI, Subpart iii, 1.A.3.a]()) that benefits are subject to reduction because of incarceration. | **Step**| **Action** 1| Identify the most recent award line that * shows a monthly rate of payment that is equal to or exceeds the rate of payment at the end of the fiscal year during which the Veteran received drill pay, and * does **_not_** fall within a period during which VA must reduce the Veteran’s benefits because of incarceration. **Important:** The monthly rate of payment for the award line identified in this step must continue – for as many days as the Veteran received drill pay – to equal or exceed the rate of payment at the end of the fiscal year during which the Veteran received drill pay. In those rare instances when it does not, identify the **_next_** most recent award line that meets the criteria set forth in this step. 2| Follow the instructions in the table below. | **If …**| **Then go to …** VA withheld benefits (to offset the Veteran’s receipt of drill pay) during a period of time that overlaps the period of time during which VA must now reduce the Veteran’s benefits due to incarceration| Step 3. * action to withhold benefits to offset the Veteran’s receipt of drill pay is _pending_ , and * current procedures call for the withholding to occur over a period of time during which the Veteran’s benefits are subject to reduction due to incarceration | Step 4. 3| * Process an award adjustment that * _reverses_ the withholding VA initially put into place to offset the Veteran’s receipt of drill pay * reduces the Veteran’s benefits, effective the 61st day of incarceration, according to the instructions in [M21-1, Part VI, Subpart iii, 1.A.3]() * reinstates the withholding to offset the Veteran’s receipt of drill pay effective the date of the award line identified in Step 1, and * discontinues the withholding after it has been in place for the same number of days the Veteran received drill pay. * Go to Step 8. **Note:** Reinstatement of the withholding (to offset the Veteran’s receipt of drill pay) from a different effective date does **_not_** constitute an adverse action for which the Veteran has never been given notice. Accordingly, VA may reinstate the withholding _without_ issuing notice of proposed adverse action for this specific action. 4| Did the Veteran respond to the notice of proposed adverse action that accompanied _VA Form 21-8951_ within 65 days of the date of the notice? * If _yes_ , go to the next step. * If _no_ , go to Step 7. 5| Did the Veteran request a hearing within 30 days of the date of the notice? * If _yes_ , take no further action until _after_ * the hearing is held, and * a decision is made as to whether or not the proposed award adjustment is still warranted. * If _no_ , go to the next step. **Reference:** For more information on handling requests for a hearing under the circumstances described in this step, see [M21-1, Part X, Subpart ii, 3.B.3](). 6| Did the Veteran provide evidence showing VA should _not_ retroactively adjust the award? * If _yes_ , * notify the Veteran of VA’s decision to make no adjustment to the award, and * disregard the remaining steps in this table. * If _no_ , go to the next step. 7| Process an award adjustment that * reduces the Veteran’s benefits, effective the 61st day of incarceration, according to the instructions in [M21-1, Part VI, Subpart iii, 1.A.3 ]() * initiates a withholding (to offset the Veteran’s receipt of drill pay) that is * effective the date of the award line identified in Step 1, and * equal to the monthly rate of payment in effect at the end of the fiscal year during which the Veteran received drill pay, and * discontinues the withholding after it has been in place for the same number of days the Veteran received drill pay. 8| Notify the Veteran of the adjustments made to the award. **_ _** **References:** * For an example of the proper application of the instructions contained in this block [M21-1, Part VI, Subpart ii, 3.C.1.j](). * For more information on notifying beneficiaries of the action(s) VA has taken and/or the decision(s) it has made, see [M21-1, Part VI, Subpart i, 1.B](). ### VI.ii.3.B.2.c. Retroactive Adjustments That Affect the Rate of Payment at Which VA Withheld Benefits to Offset a Veteran’s Receipt of Drill Pay If, subsequent to the establishment of a withholding to offset a Veteran’s receipt of drill pay, VA makes a retroactive adjustment (increase or decrease) to the monthly rate of benefits a Veteran was receiving at the end of the fiscal year in which the Veteran received drill pay, VA must make a corresponding change in the amount of benefits it withholds for the number of days the Veteran received drill pay during that fiscal year. This adjustment may require changing the drill pay withholding effective dates. **Example:** **Scenario:** * A Veteran with a combined disability rating of 20 percent received drill pay for 65 days of training during fiscal year 2020. * In February 2022, VA * established a withholding of $281.27 per month, effective October 1, 2021, to offset the Veteran’s receipt of drill pay, and * resumed the full payment of benefits ($301.74 per month), effective December 6, 2021. * A June 2022 rating decision retroactively assigns the Veteran a combined disability rating of 30 percent, effective March 1, 2020. **Result:** When VA promulgates the rating decision it must increase the amount of the withholding for the period October 1, 2021, through December 5, 2021, to $435.69. **Note:** The policy expressed in this block also applies if * VA withheld benefits at the rate it paid the Veteran on a date **_other than_** the last day of the fiscal year in which the Veteran received drill pay (for the reasons expressed in M21-1, Part VI, Subpart ii, 3.B.1.e, g, and i), and * VA makes a retroactive adjustment to the monthly rate of benefits the Veteran was receiving on that other date. ## 3. Restoring Benefits VA Previously Withheld to Offset a Veteran’s Receipt of Drill Pay This topic contains information on restoring benefits VA previously withheld to offset a Veteran’s receipt of drill pay, including * circumstances warranting a restoration of benefits, and * process for restoring benefits. March 26, 2021 ### VI.ii.3.B.3.a. Circumstances Warranting a Restoration of Benefits If VA adjusts a Veteran’s benefits based on _advance_ notice of the receipt of drill pay, but the Veteran ultimately receives drill pay for _fewer_ days than initially reported, the Veteran may recover the extra benefits VA withheld by notifying VA of the discrepancy within one year of the end of the fiscal year during which the Veteran received drill pay. The notice must include a signed statement from the Veteran’s unit commander (or designee) containing the following information: * Veteran’s unit of assignment * beginning and ending dates of each * armory drill/training session, and * period of active duty training, and * total number of days of drill pay the Veteran received during the fiscal year. **Exception:** See [M21-1, Part VI, Subpart ii, 3.A.5.a]() for circumstances under which a commander’s signature is _not_ required. **References:** For more information on * the one-year time limit for notifying VA, see [38 CFR 3.654(c)](), and * handling advance notice of a Veteran’s receipt of drill pay, see M21-1, Part VI, Subpart ii, 3.B.1.d. ### VI.ii.3.B.3.b. Process for Restoring Benefits To restore benefits under the circumstances described in M21-1, Part VI, Subpart ii, 3.B.3.a, adjust the Veteran’s award to shorten the period during which VA previously withheld benefits. Do this by changing only the effective date on which VA previously _stopped_ withholding benefits. **Example:** **Scenario:** * A Veteran provides VA advance notice he will receive drill pay for 55 days. * VA initially * withholds benefits effective October 1, and * resumes benefits effective November 26. * Within one year of the end of the fiscal year during which the Veteran received the drill pay, he notifies VA he actually received drill pay for only * 20 armory drill/training sessions, performed over 10 calendar days, and * 15 days of active duty training. **Action:** Because the Veteran received drill pay for only 35 days, adjust his award by changing the date benefits resume to November 6. **Reference:** To ensure accurate calculation of the number of days the Veteran received drill pay, see [M21-1, Part VI, Subpart ii, 3.A.2.b]().