Both Combat Related Special Compensation and Combat Related Disability Pay are programs designed to restore service-earned retirement pay that was waived in order to receive VA disability compensation. As you know, you can only receive one or the other. If you’re eligible for both, you should receive a letter from DFAS this month that shows both your CRDP and CRSC amounts and allows you to make your election.

By reviewing the election form, you should be able to determine which is most advantageous for you. Remember, that while CRSC generally pays more than CRDP, CRSC is limited to combat related disabilities, so it could be less than CRDP. Maybe enough less that taking CRDP, even though it is taxable while CRSC is not, makes more sense. From your question, it’s not clear to me how your CRSC amount compares to CRDP. Once you have those numbers, you can use a tax preparation program or an accountant to figure out which scenario is better: tax-exempt CRSC or taxable CRDP. The answer is going to be contingent on your overall tax situation.