Page 57 - 2020 Publication 17

14:38 - 19-Jan-2021
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The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.
Long-Term Care Fileid: … ations/P17/2020/A/XML/Cycle03/source injuries under a no-fault car insurance pol-
exempt from tax if they’re paid under a workers'
Insurance Contracts compensation act or a statute in the nature of a icy.
workers' compensation act. The exemption also
applies to your survivors. The exemption, how- • Compensation you receive for permanent
Long-term care insurance contracts in most ca- ever, doesn’t apply to retirement plan benefits loss or loss of use of a part or function of
ses are treated as accident and health insur- you receive based on your age, length of serv- your body, or for your permanent disfigure-
ance contracts. Amounts you receive from them ice, or prior contributions to the plan, even if you ment. This compensation must be based
(other than policyholder dividends or premium retired because of an occupational sickness or only on the injury and not on the period of
refunds) in most cases are excludable from in- injury. your absence from work. These benefits
come as amounts received for personal injury aren’t taxable even if your employer pays
or sickness. To claim an exclusion for payments If part of your workers' compensation for the accident and health plan that pro-
made on a per diem or other periodic basis un- ! reduces your social security or equiva- vides these benefits.
der a long-term care insurance contract, you CAUTION lent railroad retirement benefits re- Reimbursement for medical care. A reim-
must file Form 8853 with your return. ceived, that part is considered social security bursement for medical care is generally not tax-
A long-term care insurance contract is an in- (or equivalent railroad retirement) benefits and able. However, it may reduce your medical ex-
surance contract that only provides coverage may be taxable. For more information, see Pub. pense deduction. For more information, see
for qualified long-term care services. The con- 915, Social Security and Equivalent Railroad Pub. 502.
tract must: Retirement Benefits.
• Be guaranteed renewable; Return to work. If you return to work after
• Not provide for a cash surrender value or qualifying for workers' compensation, salary
other money that can be paid, assigned, payments you receive for performing light du-
pledged, or borrowed; ties are taxable as wages.
• Provide that refunds, other than refunds on 6.
the death of the insured or complete sur- Other Sickness and Injury
render or cancellation of the contract, and Benefits
dividends under the contract, may only be Interest Income
used to reduce future premiums or in- In addition to disability pensions and annuities,
crease future benefits; and you may receive other payments for sickness or
• In most cases, not pay or reimburse ex- injury.
penses incurred for services or items that Railroad sick pay. Payments you receive as What’s New
would be reimbursed under Medicare, ex- sick pay under the Railroad Unemployment In-
cept where Medicare is a secondary payer surance Act are taxable and you must include Change in tax rates. Recent legislation modi-
or the contract makes per diem or other them in your income. However, don’t include fied the tax rates and brackets used to figure
periodic payments without regard to ex- them in your income if they’re for an on-the-job the tax on 2020 unearned income for certain
penses. injury. children. See the Instructions for Form 8615 or
Qualified long-term care services. Qualified If you received income because of a disabil- Pub. 929 for more information.
long-term care services are: ity, see Disability Pensions, earlier.
• Necessary diagnostic, preventive, thera- Federal Employees' Compensation Act Reminder
peutic, curing, treating, mitigating, and re- (FECA). Payments received under this Act for
habilitative services, and maintenance and personal injury or sickness, including payments
personal care services; and to beneficiaries in case of death, aren’t taxable. Foreign-source income. If you are a U.S. citi-
zen with interest income from sources outside
• Required by a chronically ill individual and However, you’re taxed on amounts you receive the United States (foreign income), you must re-
provided pursuant to a plan of care prescri- under this Act as continuation of pay for up to port that income on your tax return unless it is
bed by a licensed health care practitioner. 45 days while a claim is being decided. Report exempt by U.S. law. This is true whether you re-
this income as wages. Also, pay for sick leave
Chronically ill individual. A chronically ill indi- while a claim is being processed is taxable and side inside or outside the United States and
vidual is one who has been certified by a li- must be included in your income as wages. whether or not you receive a Form 1099 from
censed health care practitioner within the previ- the foreign payer.
ous 12 months as one of the following. If part of the payments you receive un- Automatic 6-month extension. If you receive
der FECA reduces your social security
• An individual who, for at least 90 days, is ! or equivalent railroad retirement bene- your Form 1099 reporting your interest income
CAUTION
unable to perform at least two activities of fits received, that part is considered social se- late and you need more time to file your tax re-
daily living without substantial assistance curity (or equivalent railroad retirement) benefits turn, you can request a 6-month extension of
due to loss of functional capacity. Activities and may be taxable. See Pub. 554 for more in- time to file. See Automatic Extension in chap-
of daily living are eating, toileting, transfer- formation. ter 1.
ring, bathing, dressing, and continence.
• An individual who requires substantial su- Other compensation. Many other amounts
pervision to be protected from threats to you receive as compensation for sickness or in- Introduction
health and safety due to severe cognitive jury aren’t taxable. These include the following
impairment. amounts. This chapter discusses the following topics.
Limit on exclusion. You can generally ex- • Compensatory damages you receive for • Different types of interest income.
clude from gross income up to $380 a day for physical injury or physical sickness, • What interest is taxable and what interest
2020. See Limit on exclusion, under Long-Term whether paid in a lump sum or in periodic is nontaxable.
Care Insurance Contracts, under Other Sick- payments.
ness and Injury Benefits in Pub. 525 for more in- • Benefits you receive under an accident or • When to report interest income.
formation. health insurance policy on which either you • How to report interest income on your tax
paid the premiums or your employer paid return.
Workers' Compensation the premiums but you had to include them In general, any interest you receive or that is
in your income. credited to your account and can be withdrawn
Amounts you receive as workers' compensation • Disability benefits you receive for loss of is taxable income. Exceptions to this rule are
for an occupational sickness or injury are fully income or earning capacity as a result of discussed later in this chapter.
Chapter 6 Interest Income Page 53