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 program offer a non-tax qualified plan?
    
5. Can employees pay the long term care insurance premiums on a pre-tax basis (premium conversion)?
    
6. Can employees pay their long term care insurance premiums through a Health Savings Account (HSA)?

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 long term care insurance 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. Your state insurance department should be listed in the “blue” government pages of your local phone book.

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4. Does the program offer a non-tax qualified plan?

No. The law requires the Program to offer only a plan designed to be tax-qualified.

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5. Can employees pay the long term care insurance premiums on a pre-tax 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 employees pay their long term care insurance premiums through a Health Savings Account (HSA)?

 An HSA (health savings account) 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 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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