Restore Veterans’ Compensation Act of 2026

This bill aims to reform the recoupment of separation pay and benefits from former service members. It specifically prohibits the reduction or deprivation of Department of Veterans Affairs disability compensation for individuals who previously received separation pay, severance pay, or readjustment pay. This ensures that veterans' disability benefits are not impacted by prior separation payments. Furthermore, the legislation introduces significant limitations on the recoupment of these payments from members who subsequently receive military retired or retainer pay. The amount to be recouped is now limited to the net amount of separation pay, after federal income tax withholding. Monthly deductions from retired or retainer pay are capped at 25% of that month's pay, unless the member requests an accelerated rate. The Secretary of Defense is mandated to consult with the member regarding the repayment rate, taking into account their financial ability and avoiding undue hardship. Deductions cannot commence until 90 days after the member receives a clear and comprehensive notification. Importantly, the Secretary of Defense gains the authority to waive these deductions entirely if they would result in a financial hardship for the member. These provisions also apply to voluntary separation incentive and voluntary separation pay and benefits, with specific protections for disabled retirees.