Academic journal article Journal of Accountancy

New Definitions for Long-Term Care

Academic journal article Journal of Accountancy

New Definitions for Long-Term Care

Article excerpt

The Health Insurance Portability and Accountability Act of 1996 allows employees to exclude from income benefits received under an employer-provided long-term care (LTC) insurance contract. The act also allows employees to deduct medical expense amounts paid for qualified LTC services, including a limited deduction for LTC insurance premiums.

Under Internal Revenue Code section 7702B, the Internal Revenue Service defined qualified LTC services and the qualifications of a chronically ill individual. According to 7702B, a chronically ill person is one who has been certified by a licensed health care practitioner within the previous 12 months as (1) unable to perform without substantial assistance from another individual at least two of six activities of daily living for a period of at least 90 days due to a loss of functional capacity, (2) having a similar level of disability as determined under forthcoming regulations or (3) requiring substantial supervision to protect one's self from threats to health and safety due to severe cognitive impairment.

Because individuals, employers and insurance companies were having trouble interpreting these definitions, the IRS issued notice 97-31 (1997-21 IRB) to provide more guidance about whom the IRS considers chronically ill. According to the notice, taxpayers can now rely on the following safe-harbor definitions:

1. Substantial assistance means hands-on and standby assistance. …

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