Posted by Karen Munoz, EA

Long Term Care: Is it Tax-Qualified or Not?

Long Term Care: Is it Tax-Qualified or Not?

It can be an overwhelming thought if you don't know what share of your care insurance policy (Long term) will go to Uncle Sam.  This post will shed light on the operation of long-term care with the hope that it can be beneficial to you in the long run. 

Understanding Long Term Care Insurance?

The idea behind long term care is to pay for your care when you are ill or need extra assistance in essential day to day operations. Here are important areas where the coverage applies:

  • Respite care

  • In-home care

  • Nursing homes

  • Care facilities or Alzheimer’s

  • Adult daycare, etc.

Now that you are aware of the meaning and coverage of insurance care (long term), the tax aspect matters. 

An insurance policy that is long term and tax-qualified happens at the federal level. Tax qualified and qualified policies are used interchangeably. With these policies, the buyer gets some tax advantage at the federal level.

Let us consider someone who has a care policy that is long term and qualified, for instance. If such a person likes itemizing the medical deduction, there might be a possibility to remove the annual premium from the federal income tax return. 

Here is a break down of how this will eventually affect a taxpayer 

You can include your medical expenses that are deductible alongside your care policy that is long term and annual. This will give you your total. 

The good part: if the year's total is above 10% of your AGI (Adjusted Gross Income), there is the opportunity to remove excess amounts from the federal tax return

On a final note for this breakdown: your age affects the maximum amount allowed for you to claim as your deduction. 

It is vital to know if the benefits coming in with the policy coverage can be taxed alongside premium deductibility. However, any benefits from a long term care policy that is tax-qualified will not be taxed as income to the holder. On the other hand, the benefits paid on such a care policy (long term) that is not qualified can be classified as a taxable income. 

This makes it vital to work with an independent insurance agent. With a good agent, you will get the breakdown, have the necessary information, and not ignore the essential and recent tax laws about long term care. 

Make sure to contact an insurance agent who is well versed in care insurance that is long term and tax-qualified. It is a golden ticket to save as much money as possible for the latter days, making it vital to have the right person by you. 

Understanding Care Policy that is Long Term and Not Tax-Qualified

We believe the previous session has shed light on what a care policy that is long term and tax-qualified, means. Now to the other part – the non-tax qualified. The implication of this means that the benefits cannot be taxed. It does not involve a particular calculation to determine anything. 

There are, however, other parts of the equation. For instance, your long term care benefits come with no limitations or cap. What triggers the benefits are more liberal, which sometimes includes benefits that are classified medically necessary. 

For people selling, a golden selling point is that patients who don't really have a "long" long-term care period, which lasts for less than three months, qualify for this benefit. Also, there is no need for itemizing, which removes the headache from your tax preparation.



Karen Munoz, EA
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