Federally Tax-Qualified Long-Term Care Insurance Policies
The federal Health Insurance Portability and Accountability Act (HIPAA) allows for certain federal income tax advantages for long-term care insurance policies that are designated as "tax-qualified" or "qualified." If you have a tax-qualified policy, you may be able to deduct part or all of the premium you pay for the policy. You can include the premiums with other annual uncompensated medical expenses in excess of 7.5% of your adjusted gross income. The amount of the premium that you can claim as a deduction depends upon your age.
Long-term care insurance policies sold on or after January 1, 1997, as tax-qualified policies must meet certain standards. These policies must contain a caption on the face page of the policy, similar to:
This policy is intended to be a tax-qualified long-term care insurance contract under Section 7702B (b) of the Internal Revenue Code.
At the time you apply for long-term care insurance, you must receive an Outline of Coverage that contains a notice on the face page that indicates the policy is intended to be a tax-qualified policy.
Tax-qualified long-term care insurance policies are required to cover services for a chronically ill individual. These services are given according to a plan of care prescribed by a licensed health care practitioner. You are considered chronically ill if you are unable to perform a certain number of activities of daily living without substantial help from another person for at least 90 days. You also may be considered chronically ill if you need substantial supervision to protect your health and safety because you have a cognitive impairment.
The benefits paid by a tax-qualified long-term care insurance policy are generally not taxable as income. Benefits you receive from a nontax-qualified long-term care insurance policy may or may not be taxable as income.
State Income Tax Deduction
You can subtract the amount paid for long-term care insurance from your Wisconsin income tax. This subtraction applies to both policies designated for federal income tax purposes as tax-qualified and policies that are nontax-qualified. The instruction booklet you receive with your Wisconsin income tax forms includes information on the subtraction for long-term care insurance.
The publication Long-Term Care Insurance Policies Approved in Wisconsin provides more information on tax-qualified long-term care policies approved in Wisconsin.