And any tax free disability pay is from the VA, not the US military, and currently, any tax free disability pay from the VA is deducted from your retired active-duty retirement pay.
“And any tax free disability pay is from the VA, not the US military, and currently, any tax free disability pay from the VA is deducted from your retired active-duty retirement pay.”
The net effect is that whatever portion of retirement pay that is classified as disability pay is tax-free.
What occurs with some routine is military retirees are classified as partially disabled for some reason, they get their retired/disability pay as you described and then go to work for, say, a defense contractor.
So the disability pay is simply a tax-free supplement to somebody who is able to work another job and is not disabled.