Kathleen,
Payments from a LTC insurance plan are considered taxable income, but you may be able to exclude that income from your return.
But: If your employer makes any contributions toward your LTC premiums, the contributions must be reported as income on your return.
To exclude payments from your taxable income, your plan must meet a few requirements:
- You, your spouse, or dependent receiving care must be considered chronically ill by a licensed health care practitioner.
- Your plan must only provide coverage for long-term care and must be renewable.
- Your plan must not provide cash or have a surrender value or money that is pledged, assigned, or borrowed.
Check with your HR department or LTC provider to make sure your plan meets these requirements.
How much can I exclude if I’m eligible? Generally, payments for actual paid expenses can be fully excluded. However, if payments are made regardless of expenses paid, then there’s a limit. If you’re receiving payments on a periodic or per diem basis, the limit is $340 for each day for the 2016 tax year. If you receive more than $340 for each day of long-term care, you may be eligible to deduct the excess. You can deduct any excess over $340 as a medical expense if you meet the AGI floor requirement for medical deductions.
To exclude any or all payments received, complete IRS Form 8853 : see the attached links for a copy of the form and instructions:
https://www.irs.gov/pub/irs-access/f8853_accessible.pdf
Note: Our service does not include completion of tax forms.
Victor Santucci, EA
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