Tax-Qualification

Last updated: October 7, 2015

Tax Qualified Long-Term Care Plans

In 1996, Congress passed the Health Insurance Portability and Accountability Act (HIPAA), which amends the Internal Revenue Code and provides for favorable tax treatment for “qualified” long-term care plans. Policies sold after Dec. 31, 1996, must meet new standards to be considered “tax qualified.”

If you have a tax-qualified plan: 

  • The benefits paid out by a qualified long-term care policy will generally not be taxable as income by the federal government. 
  • You may deduct all, part, or none of the premium — to a certain level based on your age — for a long-term care insurance policy as medical expenses on your itemized federal tax return. The threshold is now 10% as determined by the Affordable Care Act signed into law on March 23, 2010. 

To claim a tax deduction for your long-term care premium, all of your medical expenses must be more than 10% of your adjusted gross income. Check with your tax adviser to find if you qualify for a deduction, and if so, how much. 

Tax Status Must Be Disclosed 

All companies selling long-term care policies sold after Jan. 1, 1997, must clearly identify the tax status of the policy. If the policy is tax qualified, the statement will normally be on the face page of the policy. 

  • Policies issued before Jan. 1, 1997, are “grandfathered.” The Internal Revenue Service always has the right to make the final determination as to the tax qualification of any policy. 

Nontax-Qualified Long-Term Care Plans 

If you purchase a nontax-qualified plan after Jan. 1, 1997, you will not be able to deduct any portion of the premium, and any benefits paid may be considered taxable income to you. 

  • It would be best to consult with your tax adviser regarding these provisions. 

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