I am preparing my mother's tax return. She is in a qualified medical facility due to advanced dementia. Fortunately for us, she has two long-term care insurance policies, each with an active claim under which we are reimbursed monthly for her care. Either one alone doesn't fully cover the facility's monthly charge, but combined together, the two policies cover roughly 130% of the facility's monthly charge. My question is about the "extra" 30% in excess of facility costs, and whether that amount is taxable income Her 1099-LTC box 3 is marked as "Reimbursed Amount". TurboTax is showing the entire amount as non-taxable, but it seems logical that the excess amount would be taxable income. Everything I can find so far is that the excess is gravy. But I'd rather be right than just happy with the gravy.
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It depends. You indicated that the 1099-LTC box 3 is marked "reimbursed amount". Is that the case for both policies? Do you have two Forms 1099-LTC that are both reimbursement-based? Normally, only per-diem-based payments have a limit on the exclusion from income.
In most cases, long-term care insurance contracts are treated as accident and health insurance contracts. Amounts you receive from them (other than policyholder dividends or premium refunds) are excludable from income in most cases as amounts received for personal injury or sickness. See IRS Publication 525 for more information.
To claim an exclusion for payments made on a per diem or other periodic basis under a long-term care insurance contract, you must file Form 8853 with your return.
The exclusion for payments made on a per diem or other periodic basis under a long-term care insurance contract is subject to a limit. The limit applies to the total of these payments and any accelerated death benefits made on a per diem or other periodic basis under a life insurance contract because the insured is chronically ill.
“Per diem basis” means payments made on any periodic basis without regard to actual expenses. “Reimbursed basis” means payments made for actual expenses incurred.
Under this limit, the excludable amount for any period is figured by subtracting any reimbursement received (through insurance or otherwise) for the cost of qualified long-term care services during the period from the larger of the following amounts:
See Section C of Form 8853 and its instructions for more information. The instructions include useful examples.
It depends. You indicated that the 1099-LTC box 3 is marked "reimbursed amount". Is that the case for both policies? Do you have two Forms 1099-LTC that are both reimbursement-based? Normally, only per-diem-based payments have a limit on the exclusion from income.
In most cases, long-term care insurance contracts are treated as accident and health insurance contracts. Amounts you receive from them (other than policyholder dividends or premium refunds) are excludable from income in most cases as amounts received for personal injury or sickness. See IRS Publication 525 for more information.
To claim an exclusion for payments made on a per diem or other periodic basis under a long-term care insurance contract, you must file Form 8853 with your return.
The exclusion for payments made on a per diem or other periodic basis under a long-term care insurance contract is subject to a limit. The limit applies to the total of these payments and any accelerated death benefits made on a per diem or other periodic basis under a life insurance contract because the insured is chronically ill.
“Per diem basis” means payments made on any periodic basis without regard to actual expenses. “Reimbursed basis” means payments made for actual expenses incurred.
Under this limit, the excludable amount for any period is figured by subtracting any reimbursement received (through insurance or otherwise) for the cost of qualified long-term care services during the period from the larger of the following amounts:
See Section C of Form 8853 and its instructions for more information. The instructions include useful examples.
Thank you for the clear response. Each policy's 1099-LTC is marked as Reimbursed Amount, so it does seem that the excess should be excluded from income. Thanks again.
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