Part VI, Subpart ii, Chapter 3, Section BWithholding and Restoration of Benefits Associated With Receipt of Drill Pay

Revised 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 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.

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.

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.

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 reducedbased 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.

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.

2Handling 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.

Revised 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.

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.

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.

3Restoring 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.

Revised 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.