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Long Term Care Insurance: Tax

Payments Received Under A Long Term Care Insurance Policy

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The tax status of payments received under Long Term Care Insurance Policy depends on whether the policy is "qualified" or not.

"Qualified" Long Term Insurance Policy

Payments received under a "Qualified" long term care insurance policy are generally treated the same as payments under a health insurance policy: amounts the insurance company pays are generally excludable from income.

Benefits that you receive in excess of the costs of long term care services may be taxable.

Policyholder dividends or premium refunds are included in taxable income.

For payments made on a daily (per diem) or other periodic basis, used to pay for long term care expenses, there is a limit on the exclusion. The limit applies to the total of these payments and any accelerated death benefits made on a per diem or other period basis under a life insurance contract because the insured is chronically ill. (To learn more, see: Life Insurance: How to Apply for a Living Benefit.)

To determine the limit, subtract any reimbursement received through insurance or otherwise for the cost of qualified long term care services during the tax period from the larger of the following amounts:

  • The cost of "Qualified" long term care services during the period.
  • The dollar amount for the period. During 2008, the amount is $270 per day.

"Non-Tax-Qualified" Long Term Insurance Policy

Benefits that you receive may or may not count as income. Consult with your tax advisor. (If you get an opinion in writing from an advisor or the IRS, please share it with other people in your position by clicking here.)

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