Reduction of Income Due to Unreimbursed Expenses

Overview

In This Section

This section contains the following topics:

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1. Determining When UMEs Are Deductible

Introduction

This topic contains information on determining when UMEs are deductible, including

• authority under which UMEs are deductible
• determining deductible expenses
• impact of deductible medical expenses on a Section 306 Pension rate, and
• medical expense deduction allowed before expenses are incurred.

Change Date

February 8, 2023

IX.i.3.D.1.a. Authority Under Which UMEs Are Deductible

The authority for allowing unreimbursed medical expenses (UMEs) under

• current-law pension is 38 CFR 3.272(g), and
• Parents’ Dependency and Indemnity Compensation (DIC) and Section 306 Pension is 38 CFR 3.262(l).

Note: UMEs can be used to reduce countable income for current-law pension, Section 306 Pension, and Parents’ DIC purposes.

IX.i.3.D.1.b. Determining Deductible Expenses

UMEs are not deducted from a claimant’s income on a dollar-for-dollar basis.

Use the table below to determine what medical expenses are deductible from a claimant’s income.

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IX.i.3.D.1.c. Impact of Deductible Medical Expenses on a Section 306 Pension Rate

As indicated in M21-1, Part IX, Subpart i, 1.3.b, beneficiaries receiving Section 306 Pension cannot get a rate increase by reporting changes in income.

Per M21-1, Part IX, Subpart iii, 1.C.3.e, the only time medical expenses are relevant to a Section 306 Pension case is if income would otherwise exceed the income limit. Medical expenses can be used to enable a Section 306 pensioner to continue to receive the protected rate when income would otherwise cause the award to be discontinued for excessive income.

Reference: For more information on Section 306 Pension rates, see the protected pension rates.

IX.i.3.D.1.d. Medical Expense Deduction Allowed Before Expenses Are Incurred

In most instances, the medical expense deduction is allowed after the fact.

However, if a claimant has consistently recurring UMEs, it may be possible to allow the medical expense deduction on a continuing basis.

Examples of common recurring medical expenses allowed prospectively on a continuing basis are:

• nursing home or other care facility expenses
• payments to an in-home attendant
• recurring prescriptions, and
• health or hospitalization insurance premiums, including Medicare premiums.

Note: Life insurance and burial insurance are not allowable medical expense deductions.

Reference: For more information on sources of medical expenses, processing UME deductions, and verifying medical expenses, see

• M21-1, Part IX, Subpart iii, 1.G.3-5, and
• 38 CFR 3.278.

2. Developing for UMEs

Introduction

This topic contains information on developing for UMEs, including

• using VA Form 21P-8416, Medical Expense Report, when development is needed, and
• cases that require additional development.

Change Date

July 30, 2015

IX.i.3.D.2.a. Using VA Form 21P-8416 When Development Is Needed

If development for medical expenses is needed, send the beneficiary VA Form 21P-8416, Medical Expense Report.

Notes:

• In a Parents’ DIC or Section 306 Pension case, always develop for medical expenses using the calendar year period (January 1 through December 31).
• In a current-law pension case, the development period may be the 12-month initial year period or the calendar year period, depending on which period medical expenses applies.

References: For more information on

• determining the reporting period, see M21-1, Part IX, Subpart i, 3.A.3, and
• written requests for evidence, see M21-1, Part III, Subpart i, 2.D.1.a.

IX.i.3.D.2.b. Cases That Require Additional Development

In some cases, particularly those involving nursing home fees, additional development may be necessary to determine if the claimant will be reimbursed for some of the medical expenses, since only UMEs are allowed.

Use VA Form 21P-8416 to obtain the beneficiary’s statement as to the level of UMEs.

References: For more information on

• developing for nursing home fees, see M21-1, Part IX, Subpart iii, 1.G.3.j, and
• the required fields for VA Form 21P-8416, see M21-1, Part IX, Subpart iii, 1.G.4.c-e.

3. Developing for Unreimbursed Funeral and Other Final Expenses

Introduction

This topic contains information on developing for unreimbursed funeral and other final expenses, including

• applicability of deductions for final expenses
• definition of last illness
• do not deny a deduction for expenses of last illness previously claimed
• definition of
• burial expenses and allowable deductions, and
• just debts
• allowing or denying a deduction for just debts
• example of denying a deduction for just debts
• determining allowable final expenses, and
• developing for final expenses.

Change Date

April 20, 2026

IX.i.3.D.3.a. Applicability of Deductions for Final Expenses

A claimant’s income for Department of Veterans Affairs (VA) purposes may be reduced by deducting amounts paid for certain funeral and other last expenses.

Allow a deduction only for expenses actually paid by the claimant that will not be reimbursed.

Final expenses are a factor in

• current-law pension cases, per 38 CFR 3.272(h)
• Parents’ DIC cases, per 38 CFR 3.262(o), and
• Section 306 Pension cases, per 38 CFR 3.262(n).

IX.i.3.D.3.b. Definition: Last Illness

The term last illness means the period from the onset of the acute attack causing death up to the date of death.

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.

IX.i.3.D.3.c. Do Not Deny a Deduction for Expenses of Last Illness Previously Claimed

Do not deny a deduction for expenses of last illness if those same expenses have been reported to VA as UMEs.

Note: An individual can claim they bore the expense of a claimant’s last illness or final expenses, even if the deceased beneficiary claimed those same funds as unreimbursed expenses to reduce their income for VA purposes on an income-based benefit program (i.e., Pension or Survivor’s Pension).

References: For more information on

• allowing deduction for expenses of last illness, see Helmick v. McDonough, 34 Vet.App. 141 (May 25, 2021), and
• the definition of bore the expense, see M21-1, Part XI, Subpart ii, 3.A.6.b.

IX.i.3.D.3.d. Definition: Burial Expenses and Allowable Deduction

The term burial expenses includes all funeral and burial expenses incident to disposition of the remains of deceased persons.

Notes:

• Claims processors should deduct the amount reported by the claimant as an unreimbursed final expense, unless the claimant submits a funeral statement, or one is of record that differs from the amount reported. If the total amount on the funeral statement differs from the final expense amount reported by the claimant, use the lowest total amount and include information in the notification letter.
• All expenses listed on a funeral statement of account will be considered acceptable, including
• clergy
• copies of death certificates
• flowers
• funeral service announcements, and
• organist.

Reference: For more information regarding burial expenses, see

• M21-1, Part IX, Subpart iii, 1.K.1.c, and
• 38 U.S.C. 2303.

IX.i.3.D.3.e. Definition: Just Debts

The term just debts refers to any debt that would be recognized by a probate court, meaning that the debt is legally enforceable and not fraudulent.

IX.i.3.D.3.f. Allowing or Denying a Deduction for Just Debts

Allow for a deduction only for debts that are the debts of a

• Veteran, when paid by the Veteran’s surviving spouse or child, or
• DIC parent, when paid by the surviving spouse.

Deny a deduction when a surviving spouse or surviving parent pays debts that were incurred jointly with the deceased person for the purchase of real or personal property, including a jointly incurred charge card debt.

IX.i.3.D.3.g. Example: Denying a Deduction for Just Debts

Situation:

• 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, and
• 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).
• No further development of the claimed expense is necessary.

IX.i.3.D.3.h. Determining Allowable Final Expenses

Use the table below to determine allowable final expenses by beneficiary type.

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IX.i.3.D.3.i. Developing for Final Expenses

The Survivors Pension application form, VA Form 21P-534EZ, Application for DIC, Survivors Pension, and/or Accrued Benefits, provides space for reporting final expenses.

When developing for final expenses, refer to the Expenses of Last Illness and Burial of Veteran, Spouse, or Child and Just Debts of Deceased Veteran or Parent’s Spouse block of VA Form 21-8049, Request for Details of Expenses.

Note: The Veterans Benefits Management System (VBMS) should be used for development whenever possible.

References: For more information on

• development procedures that contain Federal tax information, see M21-1, Part IX, Subpart iii, 1.A.2.h, and
• generating letters with automated tools, see
• M21-1, Part III, Subpart i, 2.D.1.a, and
• the VBMS User Guide.

4. Developing for Unreimbursed Educational Expenses

Introduction

This topic contains information on developing for unreimbursed educational expenses, including

• applicability of the educational expense deduction to a Veteran or surviving spouse payee
• developing for educational expenses for a Veteran or surviving spouse payee
• applicability of the educational expense deduction to children, and
• developing for a child’s educational expenses.

Change Date

March 31, 2021

IX.i.3.D.4.a. Applicability of the Educational Expense Deduction to a Veteran or Surviving Spouse Payee

The educational expense deduction applies only in current-law pension cases.

Per 38 CFR 3.272(i), a Veteran’s or surviving spouse’s income for VA purposes may be reduced by amounts paid for tuition, fees, books, and necessary materials.

If the Veteran or surviving spouse is found to be in need of regular A&A, an additional deduction is allowed for transportation expenses which

• are related to school attendance, and
• exceed the reasonable amounts that would have been incurred by a nondisabled person.

IX.i.3.D.4.b. Developing for Educational Expenses for a Veteran or Surviving Spouse Payee

The educational expense deduction is allowed after the fact.

Send the claimant VA Form 21P-8049, if follow-up development is needed.

IX.i.3.D.4.c. Applicability of the Educational Expense Deduction to Children

The educational expense deduction for children applies only in current-law pension cases.

Per 38 CFR 3.272(j)(2), the educational expense deduction applies

• to cases in which the child is
• the payee, and
• a dependent on a Veteran’s or surviving spouse’s claim
• only to reduce the child’s earned income and does not apply if the child has only unearned income, and
• only if the child is pursuing a course of post-secondary (after high school) education or training.

Note: Deductible expenses include amounts paid for tuition, fees, books, and materials.

IX.i.3.D.4.d. Developing for a Child’s Educational Expenses

Use a VA Form 21-10210, Lay/Witness Statement, to develop a child’s post-secondary educational expenses.

Do not develop for these expenses unless a child’s earned income exceeds the amount that can be deducted under 38 CFR 3.272(j)(1).

Reference: For information on the current and historical exclusion amount from a child’s earnings for

• Veterans Pension, see the Veterans Pension rate tables, and
• Survivors Pension, see the Survivors Pension rate tables.