When your Long Term Care Policy pays a claim –
Benefits
are generally are not taxed as income

Tax Incentives – Maximum Deduction For Individuals – Click to ENLARGE – from Agent Manual
Tax Incentives – Maximum Deduction For Individuals – Click to ENLARGE – from Agent Manual

Publication 525 Taxable & Non Taxable Income 

 

Employee Compensation
Special Rules for Certain Employees 
Business and Investment Income 
Sickness and Injury Benefits
Miscellaneous Income

 

Long-Term Care Insurance Contracts

In most cases, long-term care insurance contracts are treated as accident and health insurance contracts. Amounts you receive from them (other than policyholder dividends or premium refunds) are excludable in most cases from income as amounts received for personal injury or sickness. To claim an exclusion for payments made on a per diem or other periodic basis under a long-term care insurance contract, you must file Form 8853 with your return.

A long-term care insurance contract is an insurance contract that only provides coverage for qualified long-term care services. The contract must:

• Be guaranteed renewable;
• Not provide for a cash surrender value or other money that can be paid, assigned, pledged, or borrowed;
• Provide that refunds, other than refunds on the death of the insured or complete surrender or cancellation of the contract, and
dividends under the contract may be used only to reduce future premiums or increase future benefits; and
• In most cases, not pay or reimburse expenses incurred for services or items that would be reimbursed under Medicare, except where Medicare is a secondary payer or the contract makes per diem or other periodic payments without regard to expenses.

Qualified long-term care services. Qualified long-term care services are:

• Necessary diagnostic, preventive, therapeutic, curing, treating, mitigating, rehabilitative services, and maintenance and personal care services; and
• Required by a chronically ill individual and provided pursuant to a plan of care prescribed by a licensed health care practitioner.

Long Term Care Benefits generally are not taxed as income  under IRC §104 (a) (3) (a) In general Except in the case of amounts attributable to (and not in excess of) deductions allowed under section 213 (relating to medical, etc., expenses) for any prior taxable year, gross income does not include

(3) amounts received through accident or health insurance (or through an arrangement having the effect of accident or health insurance) for personal injuries or sickness (other than amounts received by an employee, to the extent such amounts

(A) are attributable to contributions by the employer which were not includible in the gross income of the employee, or

(B) are paid by the employer);

 

Tax Deduction for Long Term Care

IRS Publication 502 Medical & Dental Expenses

Internal Revenue Code §7702 b  Long Term Care treated as Accident & Health, just like Section 106 * Bulletin 97-31

Graphic  tax incentives so that you might be able to deduct the premium

Links & Resources

 

Other pages on Long Term Care

Employers Guide to Fringe Benefits # 15 B  

Fringe Benefit Overview

Fringe Benefit Exclusion Rules

Accident and Health Benefits 
Achievement Awards
Adoption Assistance
Athletic Facilities
De Minimis (Minimal) Benefits 
Dependent Care Assistance
Educational Assistance
Employee Discounts 
Employee Stock Options
Employer-Provided Cell Phones 
Group-Term Life Insurance Coverage
Health Savings Accounts
Lodging on Your Business Premises
Meals
No-Additional-Cost Services 
Retirement Planning Services
Transportation (Commuting) Benefits 
Tuition Reduction 
Working Condition Benefits

Fringe Benefit Valuation Rules

General Valuation Rule
Cents-Per-Mile Rule
Commuting Rule
Lease Value Rule

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