Frequently Asked Questions

Tax Benefits
 

1. Are there any Federal tax benefits related to long term care insurance?
    
2. Could the Federal tax treatment of long term care insurance change?
    
3. Are there state tax benefits for purchasing long term care insurance?
    
4. Does the Federal Long Term Care Insurance Program (FLTCIP) offer a non-tax qualified plan?
    
5. Can I pay premiums on a pretax basis (premium conversion)?
    
6. Can I pay premiums through a health savings account (HSA)?
    
7. Can I pay premiums through a Flexible Spending Accounts (FSA)?

1. Are there any Federal tax benefits related to long term care insurance?

Yes. The Federal Long Term Care Insurance Program is designed to be a tax-qualified plan under the Internal Revenue Code. This means that:

• benefits (claims) are not taxable; and
   
• you can deduct premiums as medical expenses to the extent that your total qualified medical expenses exceed 7.5% of your annual adjusted gross income. The amount of long term care insurance premiums that you can include in your total medical expenses, to meet the 7.5% threshold, is subject to Internal Revenue Service limits by age. Here are the currently published IRS limits by age:

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2. Could the Federal tax treatment of long term care insurance change?

Yes, generally only if the IRS tax code is amended.

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3. Are there state tax benefits for purchasing long term care insurance?

Yes. Many states offer state tax incentives to encourage the purchase of long term care insurance. If you’d like to find out whether your state offers such incentives, please contact your state insurance department directly. You can find the contact information at the National Association of Insurance Commissioners website.

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4. Does the Federal Long Term Care Insurance Program (FLTCIP) offer a non-tax qualified plan?

No. The law governing the FLTCIP requires the FLTCIP to offer only tax-qualified plans.

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5. Can I pay premiums on a pretax basis (premium conversion)?

No. Section 125 of the Internal Revenue Code specifically excludes from the definition of qualified benefits, "any product which is advertised, marketed, or offered as long term care insurance."

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6. Can I pay premiums through a health savings account (HSA)?

Yes, HSAs can be used to pay long term care insurance premiums, subject to limits based on age, which are published by the IRS and are adjusted annually. An HSA is an account established to pay for qualified medical expenses, including qualified long term care costs and long term care insurance premiums. Contributions and withdrawals are tax-free for qualified expenses.

To open up an HSA you must be covered under a high deductible health plan and meet certain other requirements.

The Guide to Federal Benefits for Federal Civilian Employees contains more information on HSAs and high deductible health plans.

For more information on HSAs, please visit www.opm.gov/insure/health/hsa.

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7. Can I pay premiums through a Flexible Spending Accounts (FSA)?

An FSA is an account established to pay for qualified out-of-pocket health care and dependent care expenses. Per Section 125 of the Internal Revenue Code, you cannot use it to pay FLTCIP premiums.

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