Long term care expenses and LTC insurance benefits

[mcnabb2116]

A family member has dementia and is in a long-term care facility. He received $37,000 in LTC benefits as reported on a 1099-LTC, and it is marked as being "per diem."  He had $79,000 in charges from the LTC facility. Does he get to report $79,000 as medical expenses?  Or does that amount have to be reduced by the LTC benefits, giving him only $42,000?

[GeorgeM777 · Accepted solution]

Yes, the family member can deduct the LTC facility charges; however, that expense must be itemized on Schedule A.  The family member may only deduct the amount of total medical expenses that exceed 7.5% of adjusted gross income.

You must reduce the family member's total medical expenses for the year by all reimbursements for medical expenses that you receive from insurance or other sources during the year. This includes payments from Medicare.   Therefore, reduce the $79,000 in charges by the $37,000 in LTC benefits. 

For more information see this IRS Publication at page 11, Medical and Dental Expenses

@mcnabb2116

[Debi59]

Are "per diem" payments considered reimbursements of medical expenses?

Do I need to enter the 1099 LTC amount as a reimbursement amount, or does the software already know that because I entered the 1099 LTC information? 

Do all expenses billed by the residential care facility count as medical expenses - adult diapers, wipes, personal care services, beauty/barber, etc.

[Debi59]

LTC & Medical Deduction:

Do the LTC expenses + other medical expenses get recorded under the medical deduction section and the 1099 LTC income gets reported medical reimbursements?  So they are entered twice?  Once in the Income 1099 LTC form and also under Medical Deductions?

My mother's health insurances covered her medical bills. 

The LTC facility and personal care ($18,000) expenses exceeded her LTC benefit ($10,800), and then there are other the expenses and insurance premiums ($7,700) from the interview questions. 

She did not technically get medical reimbursements.  Am I reading the question too narrowly?

So a combined $25,700 in expenses and $10,800 in PER DIEM LTC Benefit @$300/day..

Do I enter the $10,800 for LTC under Medical reimbursements?

Does the $10,800 count under "Tell us about anything received in medical reimbursements"

Thank you!

[AmyC]

Per diem payments are considered a reimbursement. You may not need to report the LTC depending on the situation.

1. If Box 3 is marked "Reimbursed Amount" and the policy is categorized as a Tax-Qualified Contract,

•  the amount of money received can generally be excluded from the income being reported. The insurance company can tell you if your policy is considered a Tax-Qualified policy.
• A tax-qualified long term care insurance contract qualifies for favorable federal income tax treatment. If the policy only pays benefits that reimburse you for qualified long-term care expenses you will not owe federal income tax on these benefits.

2. If Box 3 is marked "Reimbursed Amount" and you have a Non-Tax Qualified Contract, 

•  some or all of your benefits may be taxable. Again, the insurance company can tell you if your policy is considered a Non-Tax Qualified policy.
• A Non-Tax Qualified policy may result in a tax liability. Today, most long-term care policies are tax-qualified.

3. If Box 3 is marked "Per Diem" (which will happen for policies that are considered Indemnity policies) 

•  the amount you may exclude from taxable income being reported is limited.
• Because benefits were paid on a per diem (indemnity) basis, without regard to the actual long-term care expenses incurred; the amount of benefits that may be excluded from income is subject to a daily maximum amount.
• If this per diem (indemnity) limitation is exceeded, part of the benefits received may be taxable. The amount of the limitation increases every year. 

Only expenses not covered are eligible deductions. However, there are many more expenses than some realize. Long term care premiums are deductible. 

See Publication 502, Medical and Dental Expenses, page 11 for full instructions on handling long term care and insurance. Pg 12 has nursing home information. The whole pub is a quick read and well worth the time.

@Debi59

[SELO1010]

Question:  Mother in Asst. Living, listed chronically ill by Doctors as of 6/2021, LTC finally approved 9/2022 retroactive to 6/15/21 with a 100 day wait period.  First eligible benefit mid 9/15/2021.  Paid 37K in 4th quarter of 2022 a year later.   $37,000 is the amount she had paid into policy (principle?) Do I need to net this amount medical deductions in 2022?  

[Cynthiad66]

Yes.  You should net the amount of reimbursement out for 2022,  This is all done as a Medical deduction on Schedule A.  

When entering all of the medical costs including the cost of the facility, there is a section for reimbursements.

Generally, your LTC reimbursement is only taxable if they exceed your medical expenses. Be sure to answer the TurboTax follow-up questions in the 1099-LTC interview. 

If you need additional assistance or have more questions, please return to this forum.

@SELO1010

[sugarspice]

Where does the interview ask about Medical Expense reimbursement? In both 2021 and 2022 I entered the gross LTC expenses as Medical Expenses, as well as completing the Form 8853 worksheet.  However, Turbo Tax did not net out the gross LTC expenses in ME with the LTC benefits reported for the Form 8853.  Where would TT make me reduce the gross LTC ME by the LTC benefits pad by a per diem/indemnity policy that does not cover all the LTC expenses?

[SELO1010]

Thank you for your reply Cynthia66 

My mother is deemed chronically ill by both her Doctors and LTC Insurance company.  

Her Asst Living, 2022, expenses are $96K (plus some medical out of pocket expenses).  Her expenses exceed the amount the 1099 LTC reported for 2022 of  $37K.  Her plan is categorized as Tax Qualified.   No federal tax consequence.   She has reported premiums paid as a medical expense to date until it was approved and they stop charging her.

Are the Tax Qualified benefits of $37K netted against her 2022 total medical expenses ?

As of the end of 2022 she  she has received back in benfits the amount she paid into this policy.  If it is netted against expenses I feel like she was penalized on the money she paid into the policy since 2007.  In 2023 she will begin receiving benefits beyond what she paid in?  The policy caps out Sept 2024, $100 a day.

Having a hard time wrapping my head around how money she paid in expenses out of the pocket are being reduced by money she paid into the policy (tax qualified)?