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c. Takes place under conditions simulat- tax year that began more than 5 years before only to reduce future premiums or increase
ing war, including training exercises the date of the determination. future benefits; and
such as maneuvers; or • In most cases, not pay or reimburse ex-
Example 19. You retired in 2016 and re-
d. Is caused by an instrumentality of war. ceive a pension based on your years of service. penses incurred for services or items that
would be reimbursed under Medicare, ex-
4. You would be entitled to receive disability On August 3, 2022, you receive a determination cept where Medicare is a secondary payer
compensation from the VA if you filed an of service-connected disability retroactive to or the contract makes per diem or other
application for it. Your exclusion under this 2016. Generally, you could claim a refund for periodic payments without regard to ex-
condition is equal to the amount you would the taxes paid on your pension for 2019, 2020, penses.
be entitled to receive from the VA. and 2021. However, under the special limitation
period, you can also file a claim for 2018 as Qualified long-term care services. Qualified
Pension based on years of service. If you long as you file the claim by August 3, 2023. long-term care services are:
receive a disability pension based on years of You can't file a claim for 2016 and 2017 be- • Necessary diagnostic, preventive, thera-
service, in most cases, you must include it in cause those tax years began more than 5 years peutic, curing, treating, mitigating, rehabili-
your income. However, if the pension qualifies before the determination. tative services, and maintenance and per-
for the exclusion for a service-connected disa- sonal care services; and
bility (discussed earlier), don't include in income Terrorist attack or military action. Don’t in- • Required by a chronically ill individual and
the part of your pension that you would have re- clude in your income disability payments you provided pursuant to a plan of care prescri-
ceived if the pension had been based on a per- receive for injuries resulting directly from a ter- bed by a licensed health care practitioner.
centage of disability. You must include the rest rorist or military action. In the case of the Sep-
of your pension in your income. tember 11 attacks, injuries eligible for coverage Chronically ill individual. A chronically ill indi-
by the September 11 Victim Compensation vidual is one who has been certified by a li-
Retroactive VA determination. If you re- Fund are treated as incurred as a direct result of censed health care practitioner within the previ-
tire from the U.S. Armed Forces based on years the attack. However, you must include in your ous 12 months as one of the following.
of service and are later given a retroactive serv- income any amounts that you received that you • An individual who, for at least 90 days, is
ice-connected disability rating by the VA, your would have received in retirement had you not unable to perform at least two activities of
retirement pay for the retroactive period is ex- become disabled as a result of a terrorist or daily living without substantial assistance
cluded from income up to the amount of VA dis- military action. Accordingly, you must include in due to a loss of functional capacity. Activi-
ability benefits you would have been entitled to your income any payments you receive from a ties of daily living are eating, toileting,
receive. You can claim a refund of any tax paid 401(k), pension, or other retirement plan to the transferring, bathing, dressing, and conti-
on the excludable amount (subject to the stat- extent that you would have received the amount nence.
ute of limitations) by filing an amended return at the same or later time regardless of whether • An individual who requires substantial su-
on Form 1040-X for each previous year during you had become disabled. Disability payments pervision to be protected from threats to
the retroactive period. You must include with you receive for injuries not incurred as a direct health and safety due to severe cognitive
each Form 1040-X a copy of the official VA de- result of a terrorist or military action or for ill- impairment.
termination letter granting the retroactive bene- nesses or diseases not resulting from an injury
fit. The letter must show the amount withheld incurred as a direct result of a terrorist or mili- Limit on exclusion. The exclusion for pay-
and the effective date of the benefit. tary action may be excludable from income for ments made on a per diem or other periodic ba-
Generally, the VA determination letter will other reasons. See Pub. 907. sis under a long-term care insurance contract is
contain a table with five headings. The table on A terrorist action is one that is directed subject to a limit. The limit applies to the total of
the letter must cover the same dates for the tax against the United States or any of its allies (in- these payments and any accelerated death
year reported on the Form 1040-X. To calculate cluding a multinational force in which the United benefits made on a per diem or other periodic
the correct tax reduction, multiply the Effective States is participating). A military action is one basis under a life insurance contract because
Months by the Amount Withheld for the tax that involves the U.S. Armed Forces and is a re- the insured is chronically ill. (For more informa-
year. For example, Form 1040-X filed for tax sult of actual or threatened violence or aggres- tion on accelerated death benefits, see Life In-
year 2019. The table shows the Amount With- sion against the United States or any of its al- surance Proceeds under Miscellaneous In-
held effective December 2018 is $320.00. To lies, but doesn't include training exercises. come, later.)
calculate the amount for the tax reduction, mul- Under this limit, the excludable amount for
tiply the 2019 Effective Months by the Amount any period is figured by subtracting any reim-
Withheld. In this case, January–December Long-Term Care bursement received (through insurance or oth-
(2019) is 12 months x $320.00 (Amount With- Insurance Contracts erwise) for the cost of qualified long-term care
held) = $3,840.00; this amount should be the services during the period from the larger of the
amount claimed as a reduction on Line 1 Adjus- In most cases, long-term care insurance con- following amounts.
ted Gross Income (AGI), Column B, of the 2019 tracts are treated as accident and health insur- • The cost of qualified long-term care serv-
Form 1040-X. ance contracts. Amounts you receive from them ices during the period.
If you receive a lump-sum disability sever- (other than policyholder dividends or premium • The dollar amount for the period ($390 per
ance payment and are later awarded VA disa- refunds) are excludable in most cases from in- day for any period in 2022).
bility benefits, exclude 100% of the severance come as amounts received for personal injury
benefit from your income. However, you must or sickness. To claim an exclusion for payments See Section C of Form 8853 and its instructions
include in your income any lump-sum readjust- made on a per diem or other periodic basis un- for more information.
ment or other nondisability severance payment der a long-term care insurance contract, you
you received on release from active duty, even must file Form 8853 with your return. Workers' Compensation
if you're later given a retroactive disability rating
by the VA. A long-term care insurance contract is an in-
surance contract that only provides coverage Amounts you receive as workers' compensation
Special statute of limitations. In most ca- for qualified long-term care services. The con- for an occupational sickness or injury are fully
ses, under the statute of limitations a claim for tract must: exempt from tax if they're paid under a workers'
credit or refund must be filed within 3 years • Be guaranteed renewable; compensation act or a statute in the nature of a
from the time a return was filed. However, if you • Not provide for a cash surrender value or workers' compensation act. The exemption also
receive a retroactive service-connected disabil- other money that can be paid, assigned, applies to your survivors. The exemption, how-
ity rating determination, the statute of limitations pledged, or borrowed; ever, doesn't apply to retirement plan benefits
is extended by a 1-year period beginning on the • Provide that refunds, other than refunds on you receive based on your age, length of serv-
date of the determination. This 1-year extended the death of the insured or complete sur- ice, or prior contributions to the plan, even if you
period applies to claims for credit or refund filed render or cancellation of the contract, and retired because of an occupational sickness or
after June 17, 2008, and doesn't apply to any dividends under the contract may be used injury.
Publication 525 (2022) Page 19