No. Generally, your long term care (LTC) reimbursement is only taxable if the amount used exceeds your medical expenses.
It may be best to read the information below for an overall picture:
A qualified long-term care insurance contract is treated as an accident and health insurance contract. Thus, amounts (other than dividends or premium refunds) received under such a contract are treated as amounts received for personal injuries and sickness and are treated as reimbursement for expenses actually incurred for medical care.
Since amounts received for personal injuries and sickness are generally not includable in gross income, benefits received under qualified long-term care insurance are generally not taxable. However there is a limit on the amount of qualified long-term care benefits that may be excluded from income.
Generally, if the total periodic payments received under all qualified long-term care insurance contracts (and any periodic payments received as an accelerated death benefit under IRC Section 101(g) exceed a per diem limitation, the excess must be included in income. If the insured is terminally ill when a payment is received, the payment is not taken into account for this purpose.
As of 2021, the maximum is up to $400 per day. This is true even if your daily long-term care expenses are under $400. If your policy pays more than the limit and your expenses are lower than what you receive, the excess counts as taxable income. the excess payment amounts are taxable as income when benefits are paid.
- Notably, this “per diem” rule will not apply, regardless of payment size, if the payments are fully allocable to the reimbursement of the insured’s long-term care insurance expenses.
However, payments in excess of reimbursements may become taxable to the extent they exceed the per diem limitation as calculated above.
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