Question

When is long term care insurance reimbursement considered income?

Forum|Forum|7 years ago
June 5, 2019
2 replies
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TurboTax Premier Windows

Employee

Generally, your LTC reimbursement is only taxable if they exceed your medical expenses. Be sure to answer the TurboTax follow-up questions in the 1099-LTC interview. It may be best to answer having read the below info first.

If you have additional questions or details regarding this, please feel free to post in the comments for further clarification.

A qualified long-term care insurance contract is treated as an accident and health insurance contract. Thus, amounts (other than dividends or premium refunds) received under such a contract are treated as amounts received for personal injuries and sickness and are treated as reimbursement for expenses actually incurred for medical care. Since amounts received for personal injuries and sickness are generally not includable in gross income, benefits received under qualified long-term care insurance are generally not taxable.

But there is a limit on the amount of qualified long-term care benefits that may be excluded from income. Generally, if the total periodic payments received under all qualified long-term care insurance contracts (and any periodic payments received as an accelerated death benefit under IRC Section 101(g) exceed a per diem limitation, the excess must be included in income. If the insured is terminally ill when a payment is received, the payment is not taken into account for this purpose.

If payments exceed the greater of $360 per day (adjusted annually for inflation) or the actual amount of qualified long-term care expenses incurred, the excess payment amounts are taxable as income when benefits are paid. Notably, this “per diem” rule will not apply, regardless of payment size, if the payments are fully allocable to the reimbursement of the insured’s long-term care insurance expenses. However, payments in excess of reimbursements may become taxable to the extent they exceed the per diem limitation as calculated above.

L

LMSCPA

Another question related to this. If a taxpayer receives a settlement for "cash payment in lieu of continuing a ltc insurance policy, is any of the amount received taxable? More info - they received a form 1099-LTC with amount received in box 1 ($35625.32) and box 3 is checked as "reimbursed amount". And they received a letter also providing them with the amount of total premiums paid $34245.26 and total claim benefits received $0. is the full amount of $35625.32 taxable or only the difference of amount received and premiums paid (35625.32-34245.26=1380.06)?

J

jonbcole

If a taxpayer receives a settlement for "cash payment in lieu of continuing a ltc insurance policy, is any of the amount received taxable? More info - they received a form 1099-LTC with amount received in box 1 ($35625.32) and box 3 is checked as "reimbursed amount". And they received a letter also providing them with the amount of total premiums paid $34245.26 and total claim benefits received $0. is the full amount of $35625.32 taxable or only the difference of amount received and premiums paid (35625.32-34245.26=1380.06)?

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nat13

I received qualified long term reimbursements for a long term illness. I know that the proceeds are not considered taxable income. Are the reimbusements an offset for the amounts I paid agencies for my LTC? E.g Paid $40,000 personally and received $25,000 in qualified reimbursements.

When itemizing expense do I need to enter the amount I paid less the reimbursement? Or in this example $15,000

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AnnetteB6

Yes, when entering your medical expenses you would only enter the amount that you paid over and above the reimbursed amount ($15,000 for your example).

Or, enter the full amount ($40,000) and also the reimbursement ($25,000). The end result is the same either way.

@nat13

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D

dehn0007

This was my question as well but it is not so simple. LTC benefits are reported from form 1099-LTC in the miscellaneous income section. TT then asks what the total reimbursed expenses were and calculates what amount is taxable.

Later you come to the deduction and credit section and it asks you what medical costs you had. There are categories for Long Term Care and for Medical Facilities. Is an assisted living unit LTC or a medical facility? Can I deduct everything not reimbursed for my Dad with dementia? There is very little guidance here and the unreimbursed amount is close to my Dad's gross income! This makes a huge difference but I can't find any answers that take all of the pieces into consideration.