Is Long Term Care Insurance Taxable?

Long Term Care Insurance can be a wonderful thing. Ask anyone who knows about how expensive retirement homes can be. In general, the elderly can expect to need 1-3 years of care either in-home or at some type of extended care facility. How these insurance policies pay out can determine if they are taxable, or not.

Policies that merely reimburse for expenses paid are NOT taxable.

Those policies that pay out on a per diem basis (so much per day) COULD BE taxable. To determine if the amount received is taxable, IRS Form 8853 will have to be filled out with the tax return. Generally you will have taxable income only if the amount of your actual expenses is less than your reimbursement amount. You are required to included your expenses, days of care, and your reimbursement on IRS Form 8853.

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2 thoughts on “Is Long Term Care Insurance Taxable?

  1. This is the main difference with reimbursement and indemnity long term care insurance. A reimbursement long term care insurance is tax qualified. But you can still benefit from tax deductibility, long term care insurance as discussed in infolongtermcare.org have tax deductions based on your age and AGI. And for this year, 2014, the internal revenue service has increase the amount of tax-deductible money from long term care premiums.

    • Thanks for your comments. Bottom line is that this type of insurance can be very helpful in covering what can be very high expenses late in life. Sometimes there are tax consequences, and sometimes there is just a form (8853) to add to your tax return to indicate there are NO tax consequences. Either way, awareness can avoid an unnecessary IRS letter.

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