Long Term Care insurance payouts & assisted care payments

Question

My wife is now receiving monthly payments after qualifying as eligible under her long term care insurance. What are the tax ramifications of this? These payment are covering not quite half of her monthly residential memory/dementia care costs - how do the two income vs expense work taxwise?

MatthewD · Accepted Answer

Hi Betty4Cats,

Long-term benefits are generally not taxable, provided the policy is "tax-qualified" and benefits do not exceed certain daily limits or the actual cost of care. Most LTC policies today are tax-qualified and not taxable income.

If the LTC payments are not taxable then the payments to her residential care you pay from LTC are not deductible as itemized medical expenses.