A qualified long-term care (LTC) insurance contract is a policy that meets specific IRS requirements and provides benefits for long-term care services, such as assistance with everyday activities or care for chronic illnesses.
A contract is considered qualified if it was:
- Issued after December 31, 1996, and meets the requirements of Internal Revenue Code Section 7702B. This includes the requirement that the insured person is a chronically ill individual; or
- Issued before January 1, 1997, and met the long-term care insurance requirements under state law when and where the policy was issued, provided the contract has not been materially changed since then.
What Does This Mean for Your Taxes?
In most cases, benefits paid from a qualified LTC insurance contract aren't taxable and don't need to be included in your income.
However, special rules apply if you receive per diem payments (a fixed daily benefit amount regardless of your actual care expenses). If you received per diem benefits, review the instructions for Form 8853 to determine how much, if any, of your LTC benefits may be taxable.