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Planning Intermediate: Tax Aspects of Long-Term Care Insurance

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1.
In order for a long-term care policy to be tax-qualified, it may not have the following benefit trigger:
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Medical necessity. LTC policies that are not tax-qualified very often include "medical necessity" on the list of benefit triggers.
2.
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.
3.
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.
4.
For tax purposes, long-term care insurance premium expenses are considered _______.
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All of the above. For most taxpayers, LTC premiums are considered a medical expense for income tax purposes, subject to 10 percent AGI itemized deduction limits.
5.
Long-term care insurance policies received favorable tax treatment as a result of _______.
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HIPAA 1996. In 1996, the Health Insurance Portability and Accountability Act (HIPAA) provided that premiums for policies meeting its pro-consumer requirements could be partially deducted by some taxpayers, and benefits are paid income tax-free.