Last Updated: September 20, 2026 Reading Time: 7 min

Correction, September 20, 2026. Until today, several FedTools guides said the Department of Defense could pay a VSIP of up to $40,000 under 10 U.S.C. 1597. That is wrong on both counts. The current text of 5 U.S.C. 9902(f)(5)(A)(ii) caps DoD separation pay at $25,000. The $40,000 figure was a temporary substitution that ran from December 23, 2016 through September 30, 2021 and was never renewed. We have corrected every post that carried the old number. This article explains what happened and what a Defense civilian actually gets from a buyout in 2026.

If you work for the Army, Navy, Air Force, DHA, or any other DoD component and you are weighing a Voluntary Separation Incentive Payment this fall, the number that matters is $25,000, not $40,000. The statute, the history, and the take-home math follow.

What the Statute Says Today

DoD pays buyouts under its own authority, 5 U.S.C. 9902(f), rather than the governmentwide VSIP authority most agencies use. The dollar cap sits in paragraph (5)(A). The current text, from the U.S. Code edition current through September 2, 2026, reads:

"Separation pay shall be paid in a lump sum or in installments and shall be equal to the lesser of (i) an amount equal to the amount the employee would be entitled to receive under section 5595(c), if the employee were entitled to payment under such section; or (ii) $25,000."

Two things follow from that sentence. First, the ceiling is $25,000. Second, the ceiling is a maximum, not a promise. Your VSIP is the lesser of $25,000 or what your severance pay would be under 5 U.S.C. 5595(c). An employee with few years of service can receive less than $25,000 because the severance formula comes out lower.

The governmentwide civilian authority, 5 U.S.C. 3523(b)(3)(B), is worded almost identically: the lesser of the severance-formula amount or "an amount determined by the agency head, not to exceed $25,000." DoD's cap and everyone else's cap are the same number.

Where the $40,000 Came From and When It Ended

The $40,000 figure was real for a while. Section 1107 of the FY2017 National Defense Authorization Act (Public Law 114-328), later amended by section 1103(a) of the FY2018 NDAA (Public Law 115-91), told DoD to read its statute differently for a fixed period. The statutory note under 5 U.S.C. 9902 says:

"During the period beginning on the date of enactment of this Act [Dec. 23, 2016] and ending on September 30, 2021, section 9902(f)(5)(A)(ii) of title 5, United States Code, shall be applied by substituting 'an amount determined by the Secretary, not to exceed $40,000' for '$25,000.'"

That period ended on September 30, 2021. The notes under section 9902 contain exactly one substitution note, and no later NDAA added another. On October 1, 2021, the cap went back to $25,000 by the statute's own terms, and it has stayed there through the FY2026 NDAA.

Why So Many Guides Still Say $40,000

A number that was correct for almost five years gets copied. Guides written in 2019 or 2020 said $40,000 and cited DoD's separate authority. Later guides copied those, often swapping in 10 U.S.C. 1597 as the citation because it is the DoD statute that sounds like it governs workforce reductions.

It does not set a VSIP amount. Section 1597 covers DoD force-shaping and RIF procedures. A full-text read of the section finds no $25,000 and no $40,000.

The outlets with the deepest federal-HR beat already have the right number. FedWeek described a Pentagon VSIP program in October 2025 as "up to $25,000." Government Executive wrote in February 2026 that "VSIP offerings max out at $25,000, where the cap has sat since the 1990s." FedSmith the same month: "capped at a flat $25,000." The stale figure survives on smaller sites, and it survived on FedTools until this correction.

DoD's own agency-facing VSIP approval checklist, published by DCPAS in April 2025, cites the governmentwide authority at 5 U.S.C. 3521 through 3525 and 5 CFR part 576. It names no dollar figure at all, which is what you would expect if DoD buyouts simply follow the standard $25,000 ceiling.

What a $25,000 VSIP Actually Nets

A VSIP is supplemental wages. The IRS flat withholding rate on supplemental wages is 22 percent (IRS Publication 15, 2026 edition). Social Security and Medicare take another 7.65 percent combined. The examples assume the whole payment is below the 2026 Social Security wage base of $184,500 and that no Additional Medicare Tax applies. State withholding varies.

FedTools 2026 analysis. The table models withholding at the time of payment, not your final tax bill after filing. A lower-bracket recipient may get part of the 22 percent back as a refund. A higher-bracket recipient may owe more.

State income tax Federal (22%) FICA (7.65%) State Total withheld Net in hand
0% (Texas, Florida, Washington) $5,500.00 $1,912.50 $0.00 $7,412.50 $17,587.50
5% $5,500.00 $1,912.50 $1,250.00 $8,662.50 $16,337.50
6% (Virginia and Maryland range) $5,500.00 $1,912.50 $1,500.00 $8,912.50 $16,087.50

Methodology: $25,000 gross, each rate applied to the full gross amount, rounded once at the end. Denominator is the $25,000 gross payment.

If you planned around the old figure, run the same math on a hypothetical $40,000 payment: federal withholding $8,800, FICA $3,060, state $2,000 at 5 percent or $2,400 at 6 percent. Net: $26,140 at 5 percent, $25,740 at 6 percent.

Planning assumption Net at 5% state Net at 6% state
$40,000 (expired figure) $26,140.00 $25,740.00
$25,000 (current law) $16,337.50 $16,087.50
Shortfall vs. the plan $9,802.50 $9,652.50

If a $40,000 buyout was the number that made leaving work on paper, rerun the decision with $25,000 before you sign anything.

The Repayment Rule Still Applies

One thing did not change. Under 5 U.S.C. 3524, a VSIP recipient who accepts federal employment "within 5 years after the date of the separation on which the payment is based" must repay the entire incentive "before the individual's first day of employment." DoD's own section 9902(f)(6) carries the same 5-year repayment rule plus a separate 12-month bar on reemployment with DoD after taking the payment. Narrow waiver exceptions exist for both. The repayment is the full gross amount, not the net you received.

Could the Cap Go Back Up?

One bill is live. H.R. 7256, the Federal Workforce Early Separation Incentives Act, would replace the flat $25,000 cap in 5 U.S.C. 3523 with a formula tied to salary. The House Oversight Committee ordered it reported by a 43 to 0 vote on February 4, 2026. The govinfo bill-status record, last updated May 18, 2026, shows no floor vote and no Senate action after the committee vote.

Two cautions. The bill is not law, so the $25,000 cap governs every fall 2026 offer. And by its text the bill amends section 3523, the civilian-wide authority. It does not amend DoD's separate cap in section 9902. The bill leaves section 9902 unchanged; whether DoD could pay under an amended section 3523 is a separate question the bill does not answer. Our H.R. 7256 explainer tracks the bill.

What This Means for Your Decision

  • Army, Navy, Air Force, and DHA employees: every 2026 offer you see is capped at $25,000, and many will be lower because the severance formula in 5 U.S.C. 5595(c) comes in under the cap for shorter careers.
  • If you already ran the numbers at $40,000: rerun them. The gap is close to $10,000 in hand.
  • If you are retirement-eligible: the VSIP is a one-time payment. Compare it against the annuity you give up or gain by leaving now versus later. Our VERA and VSIP guide and the agency-by-agency tracker carry the corrected figures.

Model the Buyout Against Staying

Our free VERA/VSIP Decision Calculator takes the VSIP amount you were offered, your salary, years of service, and age, and compares the buyout against continuing to work. Enter $25,000 as the ceiling, or the lower amount in your actual offer. Run the comparison →

Frequently Asked Questions

Is DoD's VSIP cap really $40,000 in 2026?

No. It is $25,000, the same as every other federal agency. The $40,000 figure applied only from December 23, 2016 through September 30, 2021 under a temporary substitution in the FY2017 NDAA as amended by the FY2018 NDAA. It expired and was never renewed.

What statute sets DoD's VSIP amount?

5 U.S.C. 9902(f)(5)(A)(ii), which currently reads $25,000. The commonly cited 10 U.S.C. 1597 governs DoD reduction-in-force procedures and contains no dollar figure.

Is DoD's VSIP cap different from the civilian-agency cap?

No. DoD's ceiling under 5 U.S.C. 9902(f)(5)(A)(ii) and the governmentwide ceiling under 5 U.S.C. 3523(b)(3)(B) are both $25,000, and both are written as the lesser of a severance-formula amount or the flat cap.

How much of a $25,000 VSIP will I take home?

After 22 percent federal supplemental-wage withholding and 7.65 percent FICA, about $17,588 before state tax, or roughly $16,088 to $16,338 after a 5 to 6 percent state withholding. That is withholding at payment, not your final tax bill.

Could Congress restore a higher DoD cap?

The only pending bill, H.R. 7256, would replace the civilian $25,000 cap in 5 U.S.C. 3523 with a salary-based formula. It cleared House Oversight 43-0 on February 4, 2026 with no later action in the govinfo record as of May 18, 2026, and it leaves DoD's separate authority in 5 U.S.C. 9902 unchanged.

Do I have to repay a VSIP if I return to federal work?

Yes. Under 5 U.S.C. 3524, and under 5 U.S.C. 9902(f)(6) for DoD, anyone who accepts federal employment within 5 years of the separation must repay the entire VSIP before the first day back, with narrow waiver exceptions. DoD adds a separate 12-month reemployment bar.

Why do some websites still say $40,000?

The figure was accurate for almost five years, from late 2016 through September 2021, and was copied into guides that were never updated. Several FedTools posts carried it too. Those posts were corrected on September 20, 2026.

Sources