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Planning Intermediate: Tax Aspects of Long-Term Care Insurance

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1.
Taxpayers must report long-term care benefits on IRS Form 8853 only if the policy is _______.
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Either a tax- or non-tax-qualified policy. Policyholder/taxpayers are required to report benefits paid from any type of LTC policy on IRS Form 8853.
2.
A long-term care policy must pay benefits only to the provider to qualify for tax benefits.
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False. The law makes clear that benefits from a tax-qualified policy are tax-free if used to pay or reimburse you for long-term care expenses that are not covered in some other way.
3.
Insurers are required to report to the IRS long-term care benefits paid on _______.
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Either a tax-qualified or non-tax-qualified policy. Insurance companies are required to advise the IRS of benefits paid to anyone from any type of long-term care insurance policy, tax-qualified or not.
4.
The law that provided clear guidance on tax-qualified policies gave virtually no clue about the taxability of long-term care benefits paid on a non-tax-qualified policy.
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True. The same law that provided clear guidance on tax-qualified policies gave virtually no clue about the taxability of long-term care benefits paid from any other kind–i.e., a non-tax-qualified policy.
5.
Most long-term care policies sold prior to January 1, 1997 are eligible for the same favorable treatment because they were "grandfathered" by the law.
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True. Most policies sold prior to January 1, 1997 are eligible for the same favorable treatment irrespective of HIPAA requirements because they were "grandfathered" by the law.