How to Handle Retroactive VA Disability Increase

[user17720350838]

Hello,

I received from VA an increase in my disability rating on Feb 2, 2026 from 20 to 60%, effective August 8, 2025. I have my decision letter. I think this automatically transitions me into CRDP as I am a retiree collecting a 21 year pension. 

I've read it is unlikely I will receive a revised 2025 1099R. I have not filed my taxes yet. How do I calculate the correct amount of taxable income to reflect my new tax liability? I'm confused because my understanding of the CRDP is that I would receive my full pension for the 4+ months plus my tax exempt VA disability payment. It appears my tax liability will go up as my full pension is taxable and the is no "VA offset".

I've already received one payment from the Defense Finance which I am assuming relates to my pension. 

Thank you for any help.

Bob Avalle

[DavidD66 · Accepted solution]

You do not adjust your 2025 income and tax liability for the retroactive payment(s) you have or will receive in 2026.  You do not adjust your Form 1099-R.  The retroactive income will be included on your 2026 1099-R and taxable on your 2026 tax return.