Overview
In This Section |
This section contains the following topics:
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1. Overview of Deductible Expenses
Introduction |
This topic contains an overview of deductible expenses for income for Department of Veterans Affairs (VA) purposes (IVAP) in current-law pension cases, including
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Change Date |
November 27, 2015
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V.iii.1.G.1.a. Two Types of Deductible Expenses |
There are two types of deductible expenses:
Reference: For information about deductions from specific income, see M21-1, Part V, Subpart iii, 1.G.11.
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V.iii.1.G.1.b.Reporting Deductible Expenses to Reduce Overpayment |
There is no time limit for submitting a report of deductible expenses to reduce or eliminate an overpayment in a pension account. However, the deductible expenses must have been paid during the same reporting period during which the overpayment was created.
It makes no difference whether the overpayment was created because of a change in income or a change in the maximum annual pension rate (MAPR). If the overpayment was previously repaid or recouped, deductible expenses can be used to issue a retroactive payment if the retroactive amount does not exceed the amount repaid or recouped. Otherwise, apply the time limits in 38 CFR 3.660(b) if the report of deductible expenses is submitted for the purpose of getting retroactive benefits.
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V.iii.1.G.1.c. Example 1: Deductible Expenses |
Example:
Result: Accept the report of medical expenses solely for the purpose of reducing the overpayment. No retroactive benefits can be paid because the medical expense report was not submitted within 38 CFR 3.660(b) time limits. (The time limit in this situation was December 31, 2013.)
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2. UME Deductions
Introduction |
This topic contains information on medical expense deductions, including
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Change Date |
March 21, 2019
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V.iii.1.G.2.a. Rules for Deductibility of UMEs |
Unreimbursed medical expenses (UMEs) paid by a claimant (or by a claimant’s dependent(s) for VA purposes) may be used to reduce the claimant’s countable income. A deduction under 38 CFR 3.272(g) for medical expenses is permitted ifall the conditions in the table below exist.
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V.iii.1.G.2.c.
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The list below shows some of the common allowable medical expenses.
Important: This list is not all-inclusive. Allow all expenses that are directly related to medical care.
Notes: The deductible transportation expense for medical purposes is
Reference: For more information on medical expenses for VA purposes, see 38 CFR 3.278(c)(1) through (c)(7).
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3. Sources of Medical Expenses
Introduction |
This topic contains information on the sources of medical expenses, including
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Change Date |
October 18, 2018
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V.iii.1.G.3.a. Definition: Nursing Home |
For the purposes of the medical expense deduction, a nursing home means
Reference: For more information on nursing homes, see
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V.iii.1.G.3.b.
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A medical foster home (MFH) means a privately owned residence, recognized and approved by VA, that offers a non-institutional alternative to nursing home care for veterans who are unable to live alone safely due to chronic or terminal illness.
For pension purposes, an MFH that VA has recognized and approved under the MFH Program is equivalent to a nursing home.
Reference: For more information on the MFH Program, see
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V.iii.1.G.3.c. Definition: Care Facility Other Than a Nursing Home |
Care facility other than a nursing home means a facility in which a disabled individual receives health care or custodial care. A facility must be licensed if facilities of that type are required to be licensed in the State or country in which the facility is located. A facility that is residential must be staffed 24 hours per day with care providers.
Reference: For more information on care facilities other than a nursing home see38 CFR 3.278(b) 6-7 and (d). |
V.iii.1.G.3.d. Definition: Licensed Health Care Provider |
For the purposes of the medical expense deduction, a licensed health care provider refers to a person licensed to furnish health services by the state or country in which the services are provided. Licensed health care providers may include, but are not limited to
Reference: For more information on licensed health care providers see 38 CFR 3.278(b)(1) .
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V.iii.1.G.3.e. Facility Type
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The medical expense deduction should be contingent on the sort of care the disabled individual is receiving in the facility and the necessity for the individual to be there, not the name of the facility. However, if the facility type is unclear or the facility contains different housing options and it is unclear in which part the claimant or relative resides, call the facility to verify facility type. Document the call on VA Form 27-0820, Report of General Information or VA Form 27-0820b, Report of Nursing Home or Assisted Living Information, if more information is needed.
Note: If unable to reach the facility, send the claimant a 30-day development letter requesting proof of facility type.
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V.iii.1.G.3.f. Custodial Care vs. Skilled Nursing Care |
If a claimant claims room and board expenses in a facility other than a nursing home, or another facility that does not qualify as a nursing home or MFH, then custodial care must be reviewed.
Custodial care means regular
Custodial care differs from skilled nursing care. Skilled nursing care is the provision of services and supplies that can only be given by or under the supervision of a skilled or licensed health care provider.
Note: Mental, developmental, or cognitive disorders encompass a wide range of mental health conditions that affect thinking and behavior. Examples include schizophrenia, Alzheimer’s disease, and dementia.
Reference: For more information on custodial care, see 38 CFR 3.278(b) .
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V.iii.1.G.3.g. ADLs and IADLs |
ADLs are basic self-care activities, consisting of
ADLs do not include IADLs. IADLs are activities other than basic self-care that are needed for independent living. Examples of IADLs include
Note: Pull cords, 24-hour staffing, and locked exterior doors are not considered either ADLs or IADLs, although they may be indicative of a protected environment.
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V.iii.1.G.3.h. Eligibility for A&A and Housebound for Medical Expense Deduction Purposes |
Certain medical expense deductions require distinguishing persons who are and who are not eligible to be rated for A&A or housebound.
For pension, the following persons
Exception: A living Veteran’s spouse may be rated for A&A (but not housebound)if the Veteran is dually entitled to compensation of at least 30 percent.
Note: For Parents’ Dependency and Indemnity Compensation (DIC), parents may be rated for A&A, but not housebound.
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V.iii.1.G.3.i. A&A or Housebound Effective Date vs. IVAP |
A decision regarding the IVAP amount is separate from a decision regarding the effective date from which the A&A or housebound rate is payable.
If a medical expense deduction requires a claimant (or spouse) to be in need of A&A or housebound, then VA may deduct the expense during the initial year or calendar year in which VA determined the claimant (or spouse) to be in need of A&A or housebound.
Note: This block generally applies to claimants who are in a care facility or who are receiving in-home care.
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V.iii.1.G.3.j. Medical Expense Deduction for Nursing Home Fees |
Allow a medical expense deduction for nursing home fees if a responsible official of the nursing home certifies that the claimant or relative is a patient (as opposed to a resident) of the nursing home.
Verify nursing home fees if/when one of the following situations exists:
Examples of verification include
Notes:
References: For more information on
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V.iii.1.G.3.k. Medical Expense Deduction forCare Facility other than Nursing Home |
Payments for health care provided by a health care provider are medical expenses for all pension beneficiaries to include those receiving special monthly pension or those that need to be in a protected environment.
Payments for assistance with ADLs and IADLs are medical expenses, regardless if the provider is a health care provider, if the disabled individual is receiving health care or custodial care in a facility and either
Payments for meals and lodging (and other facility expenses not directly related to health care or custodial care) are medical expenses if
The claims processor must review VA Form 27-0820b, to confirm claimed medical expenses.
Exception: Provider proof verification is not required if VA Form 21-0779, is of record and was received within one year of the date of claim.
Notes:
References: For more information on
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V.iii.1.G.3.l. Example: Custodial Care for a Dependent |
Example: A child of a Veteran is placed in a State school for those with special needs. VA has rated the child as incapable of self-support. The child participates in a program of therapy supervised by a physician. The Veteran reports that the child’s Social Security goes to the state to pay for the child’s care. In addition, the Veteran pays the State $200 per month.
Result: Do not allow a medical expense deduction for the Social Security payments because this money is not paid from the Veteran’s funds. The child’s Social Security would not be counted as income of the Veteran. Allow a medical expense deduction for the $200 per month the Veteran pays to the State out of the Veteran’s own funds, because there is evidence that a physician has stated the child needs the level of care that the State school provides.
Reference: For more information on deducting medical expenses, see M21-1, Part V, Subpart iii, 1.G.2.a.
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V.iii.1.G.3.m. In-Home Attendants for a Disabled Person |
Payments for assistance with ADLs and IADLs by an in-home attendant are medical expenses as long as the attendant provides the disabled individual with health care or custodial care. Payments must be commensurate with the number of hours that the provider attends to the disabled person. The attendant must be a licensed health care provider unless
Notes:
All reasonable fees paid to the attendant for personal care of the disabled person and maintenance of the disabled person’s immediate environment may be allowed. This includes such services as cooking for the disabled person, housecleaning for the disabled person, and other IADLs.
It is not necessary to distinguish between medical and non-medical services. However, services that are beyond the scope of personal care of the disabled person and maintenance of the disabled person’s immediate environment, may not be allowed.
Example: A Veteran is rated in need of A&A by VA. The Veteran pays an attendant to administer medication and provide for the Veteran’s personal needs. The attendant also cooks the Veteran’s meals and cleans house.
Allow the entire amount paid to the attendant as a deductible medical expense. It makes no difference whether the attendant is a licensed health care provider.
References: For more information on
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V.iii.1.G.3.n. Documentation of In-Home Attendant Fees |
If the fees for an in-home attendant are an allowable expense, receipts or other documentation of this expense are required. Documentation includes
The evidence submitted must include the
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V.iii.1.G.3.o. No Annual Verification of In-Home Attendant Fees Required |
Annual verification of in-home attendant fees is not required. The claimant is required to submit documentation of expenses
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V.iii.1.G.3.p. Medical Insurance Premiums |
Premiums paid by the claimant or/spouse for health, medical, long-term care, or hospitalization insurance are allowable medical expenses.
Example: Social Security Medicare premiums
Premiums paid for life insurance or burial insurance are not allowable medical expense deductions.
Note: Some hospitalization policies pay the beneficiary on admission to a hospital even if the beneficiary incurs no out-of-pocket expense, for example, beneficiary is admitted to a charity hospital. Premiums paid for such a policy are deductible medical expenses. Amounts received by a beneficiary from such a policy are countable income if they are not paid to cover the costs of the hospitalization.
References: For more information on
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V.iii.1.G.3.q. Medicare Premiums |
Premiums for Medicare Parts A, B, and D and for long-term care insurance are medical expenses
Allow a deduction for Medicare Part B premiums as a continuing medical expensewithout a specific claim from the claimant, if information obtained from a Share SSA inquiry or submitted by the claimant indicates that the claimant pays the premium.
This is an exception to the general rule that all deductible expenses must be specifically claimed.
Important:
Reference: For more information on using Share, see the Share User Guide.
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V.iii.1.G.3.r. Nonprescription Drugs, Medical Supplies, Vitamins, Food Supplements, and Herbal Remedies |
If a health care provider authorized to write prescriptions directs a claimant or relative to purchase nonprescription drugs, medical supplies, vitamins, food supplements, and/or herbal remedies, the cost of such items is an allowable medical expense deduction.
Develop to the claimant for proof that a health care provider, authorized to write prescriptions, instructed the claimant or relative to purchase nonprescription drugs, medical supplies, vitamins, food supplements, and/or herbal remedies if the amount claimed is over $1,500 per household member per calendar year.
If the claimant does not respond to the request, allow a medical expense deduction up to $1,500 (per household member per calendar year) for nonprescription drugs, medical supplies, vitamins, food supplements and/or herbal remedies.
Example: A Veteran reports calendar year 2015 nonprescription drugs and medical supply expenses of $2,000 for herself, $800 for her spouse, and $400 for her son.
Result:
Notes:
Reference: For more information on medical expenses for VA purposes see 38 CFR 3.278(c).
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V.iii.1.G.3.s. Adaptive Equipment |
Payments for adaptive devices or service animals, including veterinary care, used to assist a person with an ongoing disability are medical expenses.
Do not allow a medical expense deduction for equipment that would normally be used by a nondisabled person, such as an air conditioner or automatic transmission.
Note: Medical expenses do not include non-prescription food, boarding, grooming, or other routine expenses of owning an animal.
Reference: For more information about medical expenses for VA purposes see 38 CFR 3.278(c).
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4. Processing UME Deductions
Introduction |
This topic contains information on processing UME deductions, including
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Change Date |
October 26, 2018
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V.iii.1.G.4.a. General Rule on Allowing Medical Expenses |
An award should not be adjusted to allow recurring or nonrecurring medical expenses without a statement from the claimant or the claimant’s fiduciary, if applicable, stating the
Medical expense adjustments may be made on the basis of information submitted orally, by e-mail or fax, or by other electronic means under the provisions of 38 CFR 3.217.
Notes:
Exception: Medicare Part B premiums are an exception to the general rule that a statement is required. VA does not require a claim or statement to deduct Medicare Part B premiums for pension purposes.
Reference: For more information on including documentation of calculations in the eFolder, see M21-1, Part III, Subpart v, 2.A.2.c.
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V.iii.1.G.4.b. Requirements for a Medical Expense Deduction Claim |
A claim for a medical expense deduction that will result in increased benefit payments must be supported by a
Reference: For more information on medical expense reporting, see M21-1, Part V, Subpart iii, 1.G. 4.a.
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V.iii.1.G.4.c. Information Required for Itemization of Expenses Related to Transportation for Medical Purposes on a VA Form 21P-8416 |
Use the table below to determine what the claimant must list for the itemization of expenses related to transportation for medical purposes on a VA Form 21P-8416.
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V.iii.1.G.4.d. Information Required for Itemization of Medical Expenses on a VA Form 21P-8416 |
Use the table below to determine what the claimant must list for the itemization of medical expenses on a VA Form 21P-8416.
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V.iii.1.G.4.e. Allowing Medical Expenses Prospectively |
Normally, medical expenses are deducted from an award after the fact, based on the claimant’s report of expenses actually paid.
However, under 38 CFR 3.272(g), medical expenses may be allowed prospectively if the claimant is paying recurring nursing home fees or other reasonably predictable medical expenses.
Notes:
Reference: For more information on calculating an estimated actual amount of recurring medical expenses, see M21-1, Part V, Subpart iii, 1.G.4.d.
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V.iii.1.G.4.f. Example of Annual Amount vs. Calculated Estimated Actual Amount |
A surviving spouse is a patient in a nursing home for long-term care because of disability from October 2015. The survivor is paying $2,000 per month for nursing home expenses beginning in October and requests this recurring expense be deducted from her income prospectively. Therefore, the
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V.iii.1.G.4.g. Dates for Allowing Medical Expenses Prospectively |
When first allowing prospective continuing medical expenses, deduct the estimated actual amount from the beginning of the reporting period in which the expenses began.
Allow the annualized amount as a continuing medical expense from the beginning of the following calendar year subject to 38 CFR 3.31.
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V.iii.1.G.4.h. Medical Expense Amount to Allow
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When first allowing prospective continuing medical expenses, deduct the estimated amount that the claimant will pay during the initial year or calendar year in which the continuing medical expense is first allowed, increased to the annual amount on February 1 of the following year.
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V.iii.1.G.4.i. Award Action to Adjust After UMEs Allowed Prospectively |
Use the table below to determine the award action after medical expenses have been allowed prospectively.
Notes:
Reference: For information about the initial year, see M21-1, Part V, Subpart iii, 1,A.3.g.
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V.iii.1.G.4.j. Reconsidering a Disallowed Claim |
In some situations
In such situations, calculate IVAP based on income and expenses projected from the effective date of the award to the date that is 12 months from the first of the month after the effective date.
If the claimant started paying continuing medical expenses after the effective date of the award, or if there has been a change in the level of continuing medical expenses, adjust IVAP 12 months from the payment date of the award or from February of the next calendar year as appropriate.
Example:
Result: Calculate IVAP (including calculated estimated actual in-home care fees) for the period February 13, 2014, through February 28, 2015. If estimated medical expenses (spread over the period February 13, 2014, through February 28, 2015) reduce the Veteran’s IVAP below the applicable MAPR, pay pension from March 1, 2014.
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V.iii.1.G.4.k. Notice to Claimants for Prospective Medical Expenses |
When recurring medical expenses are first allowed, send a notice
When recurring medical expenses are disallowed, send a notice
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V.iii.1.G.4.l. Adjusting an Award for a Reduction in Continuing Medical Expenses |
If a beneficiary reports a reduction in the level of continuing medical expenses, adjust the award effective the beginning of the reporting period based on the actual medical expenses paid during that reporting period.
A beneficiary’s report that he/she is no longer a nursing home patient or a resident of another care facility may be accepted as a report that the beneficiary is no longer paying nursing home fees or custodial care fees and the award may be reduced with contemporaneous notice.
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V.iii.1.G.4.m. Nonrecurring Medical Expenses |
Most medical expenses are allowed as a deduction after the claimant pays them. All medical expenses other than those that are allowed prospectively are considered to be nonrecurring medical expenses.
Apply nonrecurring medical expenses against otherwise countable income for the reporting period (initial year or calendar year) during which the expenses were paid.
In an original or new award after a period of nonentitlement, apply medical expenses paid between the award effective date (or date of Veteran’s death in an original Survivors Pension claim filed within one year after the Veteran’s death) and the date that is 12 months after the award payment date against income for the initial year.
If the claimant also reports medical expenses for the first full calendar year after the commencement of the award, determine the total amount of medical expenses paid
Allow the greater amount of medical expenses during the period of overlap, subject to 38 CFR 3.31.
Reference: For information about the initial year, see M21-1, Part V, Subpart iii,1.A.3.g.
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V.iii.1.G.4.n. Example 1: Nonrecurring Medical Expenses |
Example: In May 2015, a Veteran who has been in receipt of pension for more than a year reports nonrecurring medical expenses paid between January 1, 2015, and May 15, 2015.
The Veteran requests an immediate recalculation of IVAP. Although the preferred procedure is to defer the medical expense adjustment until the end of 2015, the Veteran has the right to an immediate recalculation.
Result: Adjust the award from January 1, 2015, subject to 38 CFR 3.31, to allow medical expenses paid between January 1, 2015, and May 15, 2015. Remove the medical expenses from the award January 1, 2016.
At the end of 2015, adjust the award based on total medical expenses paid during 2015 (including the previously-reported medical expenses). The adjustment is effective January 1, 2015, subject to 38 CFR 3.31.
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V.iii.1.G.4.o. Example 2: Nonrecurring Medical Expenses |
Example:
Result: Adjust the award from November 1, 2013, to allow a gross medical expense deduction of $1,000 from October 28, 2013, through October 31, 2014.
Note: The adjustment to allow the medical expense is made from November 1, 2013, because 38 CFR 3.31 has already been applied, in that the effective date of entitlement is October 28, 2013.
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V.iii.1.G.4.p. Example 3: Nonrecurring Medical Expenses |
Example: In May 2015, a Veteran who has been in receipt of pension for more than a year submits a VA Form 21P-8416 showing medical expenses paid between November 2014 and May 2015.
Result: Adjust the award from January 1, 2014, subject to 38 CFR 3.31, to allow those medical expenses paid during calendar year 2014. Recalculate IVAP as of January 1, 2015, based on the
Include a January 1, 2016, future award line to remove the medical expenses.
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V.iii.1.G.4.q. Overlapping Initial Year and Calendar Year Periods |
Overlapping periods occur when the initial year overlaps the first calendar year.
If an overlapping period is involved
Apply this same procedure where overlapping medical expense counting periods result from processing an original or new award.
Example: A surviving spouse’s initial year is July 15, 2014, through July 31, 2015.
Result: Compare the medical expenses for the following two periods:
For the overlapping period (January 1, 2015, through July 31, 2015) pay based on the higher period of medical expenses.
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V.iii.1.G.4.r. Effect of COLA or Change in Dependency Status on Pension Rate |
If a MAPR increase occurs during a period when medical expenses are being allowed, IVAP will usually change on the date of the cost-of-living adjustment (COLA) even if there is no change in the claimant’s income.
This happens because there is now a new MAPR from which to calculate the five percent deductible. The same thing occurs when a dependent is added or removed.
Example: The five percent deductible for a single Veteran on August 1, 2014, is $632, whereas on December 1, 2014, it changes to $643 due to the COLA. This change causes IVAP to increase.
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V.iii.1.G.4.s. Reimbursed Medical Expenses |
Do not allow a deduction for any medical expenses for which the claimant expects to be reimbursed.
If a medical expense deduction is allowed and the claimant later receives reimbursement for that expense, recalculate IVAP for the applicable reporting period based on actual expenses paid.
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V.iii.1.G.4.t. Renouncement of Claimed Medical Expenses |
In some situations, a beneficiary may wish to receive a lower rate of pension to establish eligibility for benefits from another agency.
The table below outlines the guidelines to apply in such situations.
Note: The additional pension or Parent’s DIC that VA pays to a beneficiary because he/she incurred UMEs is not countable as VA income for SSA purposes. For more information on how to report VA income for SSA requests see M21-1, Part III, Subpart iii, 3.B.7
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5. Verifying Medical Expenses
Introduction |
This topic contains information on verifying medical expenses, including
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Change Date |
April 13, 2018
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V.iii.1.G.5.a. When Provider Proof Is Required |
Provider proof of claimed medical expenses is required when the claims processor has reason to question the medical expenses claimed on VA Form 21P-8416, or equivalent. Use VA Form 27-0820b, to confirm claimed medical expenses. Note: Verification from other care facilities is not required unless the adjudicator finds reason to question a claim based on care facilities. Exception: Provider proof verification is not required if VA Form 21-0779, is of record and was received within one year of the date of claim. |
V.iii.1.G.5.b. What Constitutes Acceptable Provider Proof |
Provider proof can be in the form of a receipted bill, statement on the provider’s letterhead, computer summary, or other document from the provider showing all the following information:
Exception: When the provider is a nursing home, accept as provider proof a statement on VA Form 27-0820b that
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V.iii.1.G.5.c. Determining Whether Provider Proof Is Required |
Request provider proof only when you have a reason to question the medical expenses claimed.
Notes:
Reference: For more information on provider proof verification see M21-1, Part V, Subpart iii, 1.G.5.a.
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V.iii.1.G.5.d. Obtaining Proof of Expenses |
Follow the steps in the table below to obtain proof of medical expenses.
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V.iii.1.G.5.e. Beneficiaries Affected by Natural Disasters |
Victims of natural disasters may have lost or misplaced many of their possessions, including personal documents and records. Such a situation could make it especially difficult to obtain provider proof of their reported medical expenses.
Natural disasters include, but are not limited to
Note: If residence in an area affected by a natural disaster is established, VA may concede a claimant’s loss of records to verify his/her reported medical expenses.
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V.iii.1.G.5.f. Verifying Expenses for Beneficiaries Affected by Natural Disasters |
Follow the steps in the table below to verify reported expense(s) for an alleged victim of a natural disaster.
Note: Consider reasonable expenses on a case-by-case basis. Generally, these would be claimed expenses that are consistent with the nature of the claimant’s or relative’s identified disabilities, age, and amounts reported in previous years.
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V.iii.1.G.5.g. Incidental Medical Expenses |
Do not request provider proof for mileage and incidental medical expenses unless the amount claimed or the number of items claimed appears questionable.
Incidental medical expenses are relatively low cost expenses for which the claimant would not normally be expected to have documentation such as parking fees or cab fares. Whether a particular expense is an incidental medical expense is a judgment call by the claims processor. Do not routinely request verification of incidental medical expenses when sending out VA Form 21P-8416.
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V.iii.1.G.5.h. Proof Not Required for Medicare Part B Premium |
Do not require provider proof from SSA for the Medicare Part B premium. Insert a copy of a Share Social Security print in the eFolder each time an award is processed to allow an unreimbursed medical expense deduction for Medicare reasons.
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V.iii.1.G.5.i.Acceptability of Photocopies |
Photocopies of receipted bills, canceled checks, or other documents are acceptable provider proof as long as they are legible and appear regular.
If there is any question as to the validity of a photocopy, request the original document.
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V.iii.1.G.5.j. Provider Proof Maintained in the eFolder |
Maintain provider proof of claimed medical expenses in the eFolder.
When requesting provider proof, advise the claimant that photocopies should be submitted if the original documents are needed for insurance, tax, or other purposes.
Use the following table to handle documents submitted as proof by the claimant.
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6. Final Expense Deductions – Overview and Definitions
Introduction |
This topic contains information on final expense deductions, including
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Change Date |
September 29, 2016
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V.iii.1.G.6.a. General Information on Final Expenses |
Under 38 CFR 3.272(h)(1) and 38 CFR 3.272(h)(2)(i), deductible final expenses include amounts paid by a
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V.iii.1.G.6.b. Definition: Last Illness |
For the purposes of the final expense deduction, the term last illness means the period from the onset of the acute attack causing death to the date of death. Generally, expenses incurred more than one year prior to date of death should not be considered expenses of last illness.
If death resulted from a lingering or prolonged illness instead of an acute attack, the period of last illness is considered to have begun at the time the person became so ill as to require the regular and daily attendance of another person.
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V.iii.1.G.6.c. Burial Expenses |
Burial expenses include all normal expenses incident to disposition of the remains of deceased persons.
If an expense is allowable for purposes of paying VA burial benefits under 38 CFR 3.1700, consider it a burial expense for purposes of the final expense deduction. However, do not deduct any expense for which the claimant will be reimbursed (including VA reimbursement for burial benefits).
Example: A surviving spouse claims $3,000 in burial expenses. VA paid $600 toward the burial and plot and $400 in transportation costs, for a total of $1,000. Therefore, only $2,000 of the claimed burial expenses is deductible for pension purposes.
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V.iii.1.G.6.d.
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Under 38 CFR 3.272(h)(1)(ii), deduct just debts only when the debts are those of a Veteran and they are paid by a surviving spouse or child claimant.
Payments of unsecured debts incurred solely by the Veteran and debts incurred jointly by the Veteran and surviving spouse, for other than the purchase of real or personal property, are deductible as just debts.
Payments of secured debts incurred jointly by the Veteran and surviving spouse for the purchase of real or personal property are not deductible as just debts. This includes payments on home and car loans.
Notes:
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V.iii.1.G.6.e.Example 1: Just Debts |
Example: A surviving spouse claims a deduction for payment of just debts of the Veteran. Development reveals that the spouse has been making payments on a car note. The Veteran and surviving spouse were joint obligors on the note.
Result: Payments on the car note are not deductible as just debts of the Veteran because the debt was jointly incurred by the survivor and the Veteran for the purchase of real or personal property (the car).
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V.iii.1.G.6.f. Example 2: Just Debts |
Example: A surviving spouse claims a deduction for payment of just debts of the Veteran. The surviving spouse reports having paid for a vacation taken prior to the Veteran’s death. The Veteran and surviving spouse were joint obligors on the debt.
Result: Since the obligation was not incurred for the purchase of real or personal property, amounts paid by the surviving spouse to liquidate the debt are deductible.
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V.iii.1.G.6.g. Final Expenses Paid by Surviving Spouse Prior to Date of Pension Entitlement |
Expenses of last illness and burial expenses, for example, prepaid burial, paid before the date of pension entitlement, can be considered final expenses if paid by a surviving spouse. There is currently no time limit for allowing such expenses.
Expenses of a Veteran’s last illness that were allowed as a medical expense deduction on the Veteran’s pension or Parents’ DIC account during the Veteran’s lifetime cannot later be deducted as a final expense on the surviving spouse’s pension award.
Note: If a surviving spouse is denied benefits multiple times, and later becomes entitled to pension, the final expenses may then be used to reduce countable income for the surviving spouse’s initial year of entitlement.
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7. Processing Final Expense Deductions
Introduction |
This topic contains information on processing final expense deductions, including
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Change Date |
March 4, 2016
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V.iii.1.G.7.a. Period to Deduct Final Expenses |
General rule:
Final expenses are deducted during the calendar year (or initial year) during which they are paid.
Exceptions:
The table below shows the exceptions to the general rule for deducting final expenses.
Note: The delayed payment provision of 38 CFR 3.31 applies to the payment date if the expense deduction results in an increased pension rate for one month compared to the previous month.
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V.iii.1.G.7.b. Example 1: General Rule for Deducting Final Expenses |
Example:
Result: Since the final expenses were paid during the calendar year of death, and the initial year begins during that calendar year, deduct the final expenses for the surviving spouse’s initial year of entitlement.
The table below shows how income and expenses are counted and deducted on the award.
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V.iii.1.G.7.c. Example 2: General Rule for Deducting Final Expenses |
Example:
Result: Since the final expenses were paid after the calendar year following the year of death, deduct them for the calendar year during which they were paid, January 1, 2015, through December 31, 2015.
Note: Because deducting the expenses will result in an increased rate for January compared to December, the award will reflect the deduction on February 1 per 38 CFR 3.31.
The table below shows how income and expenses are counted and deducted on the award.
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V.iii.1.G.7.d. Example 3: Final Expenses Paid During the Calendar Year Following the Year of Death |
Example:
Result: Since the final expenses were paid during the calendar year (2014) following the calendar year of the Veteran’s death (2013), VA can deduct them for the initial year or for any 12-month period that is most advantageous to the claimant, provided it begins within the calendar year of death (2013).
In this case, that means VA can deduct the $2,000 for the period September 1, 2013, through August 30, 2014, and deduct the $800 for the period October 1, 2013, through September 30, 2014.
The table below shows how income and expenses are counted and deducted on the award.
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V.iii.1.G.7.e. Example 4: Final Expenses Paid by the Surviving Spouse Before the Veteran’s Death |
Example:
Result: Since the expenses were paid by the Veteran’s spouse before the Veteran died, VA can deduct them for the initial year, April 19, 2014, through April 30, 2015.
The table below shows how income and expenses are counted and deducted on the award.
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V.iii.1.G.7.f. Example 5: Final Expenses Paid by the Surviving Spouse After the Veteran’s Death but Before the Date of Pension Entitlement |
Example:
Result: Since the expenses were paid after the date of death but before the date of Survivors Pension entitlement, VA can deduct them for the initial year, November 14, 2014, through November 30, 2015.
The table below shows how income and expenses are counted and deducted on the award.
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V.iii.1.G.7.g. Example 6: Final Expenses Paid by the Surviving Spouse Before the Veteran’s Death and During the Calendar Year Following the Year of Death |
Example:
Result: The table below shows how income and expenses may be counted and deducted on the award and the reason for the award action or adjustment.
Note: There may be several ways to count final expenses paid during the calendar year following the year of death. Per M21-1, Part V, Subpart iii, 1.G.7.a, use the method that is most advantageous to the claimant.
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V.iii.1.G.7.h. Final Expenses Paid From Joint Accounts |
A question may arise as to whether final expenses were paid by the deceased person or the claimant.
If the evidence establishes that payment was made from the claimant’s separate funds or from a joint account with the claimant and another person, consider the expenses to have been paid by the claimant. However, do not allow any expenses as final expenses if they have already formed the basis of a medical expense deduction on the Veteran’s record.
Example:
Result: The entire amount paid may be deducted from the surviving spouse’s IVAP for the initial year period.
Reference: For more information on the initial year period, see M21-1, Part V, Subpart iii, 1.E.7.
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V.iii.1.G.7.i. Reimbursed Final Expenses |
If a final expense deduction is allowed, and the beneficiary subsequently receives reimbursement for some or all expenses, recalculate IVAP for the period over which the deduction was allowed to remove those expenses for which reimbursement was received.
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8. Educational Expense Deductions
Introduction |
This topic contains information on educational expense deductions, including
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Change Date |
March 4, 2016
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V.iii.1.G.8.a. General Information on Education Expense Deductions |
Allow a deduction for the unreimbursed expenses for a Veteran or surviving spouse pursuing a course of education or vocational rehabilitation, per 38 CFR 3.272(i).
Deductible expenses include amounts paid for
Note: There is no requirement that the course of education or vocational rehabilitation be approved for VA educational benefits.
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V.iii.1.G.8.b. Transportation Expenses |
Allow unusual transportation expenses only if the Veteran or surviving spouse is rated in need of A&A.
If the Veteran or surviving spouse is rated in need of A&A, allow transportation expenses that
Note: The entire expense is deductible, not just the portion that exceeds the amount incurred by a non-disabled person.
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V.iii.1.G.8.c. Period of Deduction |
Deduct educational expenses for the initial year or calendar year during which they were paid.
When the initial year overlaps the first calendar year, deduct the higher amount of educational expenses during the overlapping period.
Enter educational expenses in the EDUCATION EXPENSE field on the financial screen.
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9. Child’s Income Deductions
Introduction |
This topic contains information on a child’s income deductions, including
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Change Date |
November 27, 2015
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V.iii.1.G.9.a. Deduction From Child’s Earned Income |
Under 38 CFR 3.272(j)(1), a child’s earned income is countable only to the extent that it exceeds an amount equal to the lowest amount of gross income for which a single person must file a Federal income tax return.
This amount is adjusted each year by the IRS based on changes in the Consumer Price Index. The current amount of the exclusion can be found in the pension rate tables.
This deduction applies regardless of whether the child is the person entitled or a dependent on a Veteran’s or surviving spouse’s award.
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V.iii.1.G.9.b. Deducting a Child’s Income |
Enter the gross income of a child in the WAGES ANNUAL field on the FINANCIAL screen. The system automatically calculates the deduction and arrives at the child’s countable earnings.
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V.iii.1.G.9.c. Child’s Postsecondary Education Expenses |
A child’s postsecondary education expense deduction applies only when a child has earned income in excess of the amount deducted under 38 CFR 3.272(j)(1). The educational expense deduction may not exceed the net amount of the child’s earnings after the child’s earned income deduction.
The postsecondary educational expense deduction applies
Note: Do not deduct amounts paid from scholarships and grants since scholarships and grants are not countable income for pension purposes unless they exceed education expenses.
Reference: For more information on income exclusions, see M21-1, Part V, Subpart iii, 1.I.3.
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V.iii.1.G.9.d. Deducting a Child’s Postsecondary Education Expenses |
Deduct expenses for tuition, fees, books and necessary materials.
Enter amounts to be deducted under this provision in the CHILD’S EDUCATION EXPENSE EXCLUSION field on the FINANCIAL screen.
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10. Hardship Deductions From a Child’s Income
Introduction |
This topic contains information on hardship deductions from a child’s income, including
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Change Date |
April 13, 2018
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V.iii.1.G.10.a. General Information on Hardship Deductions From a Child’s Income |
Under 38 CFR 3.23(d)(4), a Veteran’s annual income includes the income of each child of the Veteran to the extent that the child’s income is available to or for the Veteran unless, in the judgment of VA, it would work a hardship on the Veteran to count the child’s income.
38 CFR 3.272(m) provides for a specific hardship deduction from child income. The hardship deduction applies only to Veteran and surviving spouse claimants. It does not apply to surviving children claiming pension in their own right.
Note: 38 CFR 3.23(d)(5) contains similar language with respect to surviving spouse claimants.
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V.iii.1.G.10.b.Considering Hardship Deductions From a Child’s Income |
Do not consider hardship deductions from children’s income without first determining that the child’s income
Consider the hardship deduction only if a child still has countable income after
References: For more information on deductions
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V.iii.1.G.10.c.Elements of the Hardship Determination |
Hardship exists if annual expenses necessary for reasonable family maintenance exceed the sum of countable annual income, plus pension entitlement.
To make a hardship determination compare the sums of
Reference: For a definition of hardship for the purposes of the hardship exclusion for a child’s income, see 38 CFR 3.23(d)(6).
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V.iii.1.G.10.d. Reasonable Family Maintenance Expenses |
Annual expenses necessary for reasonable family maintenance include expenses for basic necessities, such as food, clothing, shelter, and other expenses, determined on a case-by-case basis, which are necessary to support a reasonable quality of life.
Exclude expenditures for items that are not necessary to support a pensioner’s reasonable quality of life, such as luxuries, gambling, and investments. In addition, exclude expenditures used to calculate the claimant’s IVAP.
Whether a particular expenditure is necessary to support a pensioner’s reasonable quality of life is a judgment call for the claims processor.
Reference: For more information on excluding expenditures used to calculate IVAP, see M21-1, Part V, Subpart iii, 1.G.10.f.
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V.iii.1.G.10.e. How Hardship Must Be Claimed |
The claimant must allege that it would be a hardship to count a child’s income before hardship is placed in issue. Although the claimant does not have to use the word “hardship,” development should be initiated only if there is a clear indication that hardship is being claimed.
Use VA Form 21P-0571, Application for Exclusion of Children’s Income, to develop hardship claims.
Note: Annual pension entitlement (which is added to IVAP to make a child hardship determination) does not necessarily equal 12 times the claimant’s monthly rate because monthly payments are rounded down to even dollar amounts under38 CFR 3.29(b).
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V.iii.1.G.10.f. Medical and Educational Expenses as Family Expenses |
Under 38 CFR 3.272(m), annual expenses necessary for reasonable family maintenance (family expenses) may not include any expenses which were considered in determining the Veteran or surviving spouse’s IVAP.
This means that medical or educational expenses that were deducted from gross income in arriving at IVAP cannot be considered family expenses for purposes of the hardship exclusion. The same expenses cannot be deducted twice.
However, medical or educational expenses that could not be deducted from gross income in arriving at IVAP may be included in the calculation of expenses necessary for reasonable family maintenance.
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V.iii.1.G.10.g. Medical Expenses for the Hardship Exclusion |
Normally, the only medical expenses which qualify as family expenses are those which cannot be deducted under 38 CFR 3.272(g) because they are below 5 percent of the applicable MAPR.
If the claimant’s total medical expenses are
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V.iii.1.G.10.h. Example: Medical Expenses for the Hardship Exclusion |
Example: A Veteran with a running award reports total family income. The Veteran’s only established dependent is a child. The child has Social Security income of $9,000 and the Veteran has income of $2,000. The Veteran reports unreimbursed medical expenses of $400. The Veteran claims that it would cause a hardship to count the child’s income. The Veteran reports family expenses of $18,496. The $18,496 includes the $400 in medical expenses.
Result: Treat the $400 as a family expense since the 5-percent medical expense threshold for a Veteran with one dependent is $842 effective December 1, 2014. By treating the $400 as a family expense, family IVAP can be reduced.
Calculation: The table below outlines the calculation for determining the IVAP after applying the hardship exclusion.
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V.iii.1.G.10.i.Educational Expenses |
A child’s postsecondary educational expenses may be deductible from earnedincome under 38 CFR 3.272(j)(2).
However, in many instances, a child’s educational expenses will not qualify for exclusion under 38 CFR 3.272(j)(2) because
Any educational expenses which are deductible under 38 CFR 3.272(j)(2) should be deducted under that provision. If educational expenses cannot be deducted under 38 CFR 3.272(j)(2), consider them as family expenses.
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V.iii.1.G.10.j.Example: Educational Expenses |
Example: The Veteran has two children, Rob and Sarah. Rob is a college student with tuition and book expenses of $1,200 per year. Rob has no income. Sarah has no school expenses but earns $12,000 per year; therefore, Sarah has countable income effective December 1, 2014, even after applying the child’s earned income exclusion in 38 CFR 3.272(j)(1). Rob has educational expenses that are potentially deductible under 38 CFR 3.272(j)(2), but he has no income.
Result: Rob’s educational expenses cannot be offset against Sarah’s income. However, Rob’s educational expenses can be treated as family expenses if Sarah’s income is available to the Veteran and the Veteran claims that it would cause a hardship to count it.
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V.iii.1.G.10.k. Making Initial Hardship Determinations |
Use the table below when making initial hardship determinations.
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V.iii.1.G.10.l.Award Entries When No Apportionment Is Involved |
When the level of expenses necessary for reasonable family maintenance has been determined, enter the total allowed expenses in the HARDSHIP EXCLUSION field on the FINANCIAL screen.
The system calculates the amount of the hardship deduction and reduces countable child income by that amount.
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V.iii.1.G.10.m. Apportioned Cases When IVAP Does Not Exceed MAPR |
If there is an apportionment and IVAP (without consideration of the hardship exclusion) does not exceed the “dependency this award” MAPR
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V.iii.1.G.10.n.Example: Apportioned Cases When IVAP Does Not Exceed MAPR |
Example: A Veteran has a spouse and two children. One child is out-of-custody and is receiving an apportionment. IVAP (without consideration of the hardship deduction) does not exceed the “dependency this award” MAPR.
The claims processor determines that total allowed family expenses are $16,000. The “total dependency” MAPR for a Veteran with three dependents effective December 1, 2014, is $21,247. The “dependency this award” MAPR for a Veteran with two dependents effective December 1, 2014, is $19,049.
Calculation: The table below outlines the calculation for determining the hardship expenses.
Result: Enter $13,802 in the HARDSHIP EXCLUSION field on the FINANCIAL screen. The system then calculates the correct child hardship deduction.
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V.iii.1.G.10.o. Apportioned Cases When IVAP Exceeds MAPR |
If there is an apportionment and IVAP (without consideration of the hardship exclusion) exceeds the “dependency this award” MAPR, enter the total allowed family expenses in the HARDSHIP EXCLUSION field on the FINANCIAL screen.
There is no need to adjust the HARDSHIP EXCLUSION entry if IVAP exceeds the “dependency this award” MAPR.
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V.iii.1.G.10.p.Effective Dates for the Hardship Exclusion |
Apply 38 CFR 3.660(b) and 38 CFR 3.31 to determine the effective date of an increased rate of pension based on a change in child income by
Example: A Veteran’s only dependent is a child. The Veteran’s current reporting period is January 1, 2014, through December 31, 2014. On November 11, 2014, a claim for the hardship exclusion is received from the Veteran. Development reveals that the Veteran is entitled to have $1,000 excluded from the child’s income. No other adjustments are required based on a review of the claims folder.
During January 2014, the Veteran received pension of $976 per month based on IVAP of $5,136. After applying the hardship exclusion, IVAP for the period January 1, 2014, through December 31, 2014, goes down to $4,136.
Result: Continue the $976 per month rate for January and award $1059 per month effective February 1, 2014, per 38 CFR 3.31.
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V.iii.1.G.10.q. Adjusting for Changes in the Level of Family Expenses |
If a claimant reports an increase in family expenses that will result in an increase in the amount of the hardship exclusion, determine if additional development is necessary to justify the increase in family expenses. Once an initial hardship exclusion has been allowed, the amount of the exclusion may be increased without a new itemization of expenses as long as the reported increase in family expenses appears reasonable.
If it is determined that no additional development is required or if development establishes that the increase is warranted, make the adjustment effective the beginning of the next calendar year reporting period, subject to 38 CFR 3.31.
Use the table below to determine how to make the adjustment for changes in the level of family expenses.
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V.iii.1.G.10.r. Example: Adjusting for Changes in the Level of Family Expenses |
Example: Family maintenance expenses of $16,000 are established for a Veteran. In April 2015, a Veteran reports additional expenses expected for 2016.
The increased expenses, if allowed, would result in an increased child hardship deduction. A claims processor reviews the file and determines if the level of claimed family expenses appears reasonable without further development.
Result: Adjust the award effective January 1, 2016, (or February 1, 2016, due to38 CFR 3.31) to allow the higher exclusion.
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V.iii.1.G.10.s. Verifying Family Expenses |
Do not attempt to verify family expenses that have already been allowed.
However, if a claimant reports a change in family expenses for a retroactive period and the change will affect the rate of pension payable, adjust the award, subject to38 CFR 3.31 and 38 CFR 3.660(b)(1), effective the later of the two following dates:
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V.iii.1.G.10.t. MAPR Changes and the Hardship Exclusion |
When there is an increase in the MAPR, for example, as the result of a COLA, the sum of the IVAP plus pension entitlement also increases. This means that the amount of the child hardship exclusion should decrease, assuming no change in the level of family expenses.
If this causes a reduction in the rate of VA pension, adjust the award effective the first of the month after the date of the COLA/MAPR increase.
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11. Specific Deductions for Gross Business Income and P&T Disability or Death Expenses
Introduction |
This topic contains information on specific deductions for gross business income and P&T disability or death expenses, including
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Change Date |
November 27, 2015
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V.iii.1.G.11.a. Gross Business Income Deductions |
If a claimant has income from rentals or operation of a business, determine countable income by deducting reasonable operating expenses from gross income, per 38 CFR 3.271(c).
Enter the net profit from rentals or operation of a business in the BUSINESS ANNUAL field on the FINANCIAL screen.
Specific Deductions:
Specific Items Not Deductible:
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V.iii.1.G.11.b. P&T Disability/Death Expense Deductions |
If a claimant is awarded benefits based on P&T) disability or death, expenses incurred in securing the award are deductible directly from the award, such as attorneys’ fees and medical bills.
Specific Deductions:
Rationale: The underlying theory is that the claimant should be charged income only for the amount of the award that is over and above amounts that had to be expended in securing the award.
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V.iii.1.G.11.c. Application of P&T Disability/Death Expense Deductions |
This deduction is applied only once when the disability or death benefits are initially awarded. After this one-time (nonrecurring) deduction, any ongoing medical expenses are deductible only as medical expense deductions, per 38 CFR 3.272(g).
The same amounts of medical or legal expenses that are deducted from P&T disability or death income, per 38 CFR 3.272(g), cannot also be deducted as medical expenses. Medical expenses paid after the effective date of a disability award should be deducted as medical expenses.
Medical or legal expenses paid prior to the pension effective date can be deducted from an award per 38 CFR 3.271(g), provided the expenses are directly related to the incident or the recovery of an award or settlement.
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V.iii.1.G.11.d. Developing for P&T Disability/Death Expense Deductions |
Use VA Form 21P-8416b, Report of Medical, Legal, and Other Expenses Incident to Recovery for Injury or Death, to develop for unreimbursed amounts the claimant has actually paid in connection with a disability/death award.
Do not deduct any amounts that the claimant has not actually been paid.
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V.iii.1.G.11.e. Financial Screen Entries for P&T Disability/Death Expense Deductions |
Enter the following information on the FINANCIAL screen:
Note: The amount deducted cannot exceed the amount of the award. The system calculates net countable income.
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in Chapter 1 The Effect of Income and Net Worth on Pension and Parents Dependency and Indemnity Compensation (DIC), Part V Pension and Parents Dependency and Indemnity Compensation (DIC), Subpart iii Authorization issues
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