Integration with VA Benefits
The Department of Veterans Affairs (VA) pays a benefit called Dependency and Indemnity Compensation (DIC) to your surviving spouse and dependent children if you die of service-connected causes. This includes deaths after retirement if the cause of death is due to an injury or disease contracted while the member was on active duty.
DIC may also be paid if you had a 100 percent VA disability rating for ten continuous years, or if less than ten years, then at least five continuous years from the date of release from active duty. The VA determines who may receive DIC.
Effective December 1, 2003, DIC payments to all surviving spouses are at the monthly rate of $967, adjusted annually for cost of living. If you are rated as totally disabled as a result of a service-connected disability for at least eight continuous years preceding death, your spouse is entitled to an additional $208. An additional $241 is payable for each dependent child.
Any DIC paid to your spouse is subtracted from SBP payments; although, DIC payments to or for children do not affect SBP payments.
Refund of SBP Costs
A refund is paid to your surviving spouse for the costs deducted for that part of the SBP benefit not received due to DIC being paid. If the DIC payment offsets the entire SBP payment, all costs will be refunded. These refunds are taxed as income to the survivor since they were not taxed when deducted from retired pay.
(Note: Refunds are not made for: 1) Added costs associated with 1992-93 Open Season enrollments/changes or 2) enrollment costs associated with 1999-2000 Open Season elections).
DIC and Taxes
DIC payments are exempt from Federal and state income tax, which gives the surviving spouse more "take home" income.
Remarriage and DIC
When a surviving spouse remarries, DIC payments stop regardless of that spouse's age. (Note: beginning Oct. 1, 1998, DIC may be resumed if that marriage ends in death or divorce.) If that spouse's SBP was reduced or eliminated because of DIC, the full SBP payment may resume. The SBP remarriage rules will apply. The spouse must first repay all the SBP costs that were refunded when DIC first began. Installment type repayments are allowed; contact the finance center for details.
In the following examples the base amount selected for SBP coverage is $2,000 (which would provide an annuity of $1,100 before age 62 and $700 after age 62). The surviving spouse is entitled to both SBP and DIC.
SBP before age 62: $1,100
- DIC payments - $967
= SBP payable after DIC =$133
Note that the total of SBP plus DIC is still equal to what SBP would have paid alone; however, the DIC portion of the payment is not taxable as income. The spouse is refunded the costs paid by the retiree except what would have been paid to provide the spouse a benefit of $133.
SBP age 62 or later: $700
- DIC payments - $967
= SBP after DIC = 0
In the second situation, the DIC is greater than the SBP payment. In this case all costs deducted from retired pay for SBP would be refunded to the surviving spouse. The total of SBP and DIC will always be greater than or equal to what the SBP benefit alone would be.
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