I realized that, in spite of the length of my previous post, I omitted an important consideration. If it applies to you, it could mean that some or all of your premium refund would be taxable, even if you never claimed an itemized deduction for the long-term care insurance premiums, and if the three criteria that I listed in my first reply indicate that none of the refund would be taxable. This would make things even more complicated.
What I overlooked is the possibility that you could have claimed the self-employed health insurance deduction for some or all of the long-term care insurance premiums. If you had self-employment income (business income) on Schedule C or farm income on Schedule F you could have claimed the self-employed health insurance deduction. (Certain less common types of income would also allow you to claim the self-employed health insurance deduction, such as income from a partnership or S corp.) The self-employed health insurance deduction is not an itemized deduction, and you could have claimed it even if you used the standard deduction, or used itemized deductions but did not deduct medical expenses.
If, in any year, you included long-term care insurance premiums in the self-employed health insurance deduction, then the refund of the premiums would be a "nonitemized deduction recovery." You would have to calculate how much of the deducted premiums actually resulted in a reduction of your tax, and report that amount as taxable income in the year you get the refund. The basic concept is the same as for the itemized deduction for medical expenses, but there is no worksheet for nonitemized deduction recoveries. The self-employed health insurance deduction is not subject to the 7.5% or 10% of AGI reduction that applies to the itemized deduction for medical expenses, but the age-based limit on long-term care insurance premiums still applies.
If you never claimed the self-employed health insurance deduction, or claimed it but did not include long-term care insurance premiums in the deduction, you can ignore this whole post.
