How Long-Term Care Expenses are Paid For:
Reimbursement – The insurance company pays the care giver or nursing home directly.
Indemnity – The insurance company sends a check to the person insured for a predetermined amount specified in the contract. The money can be spent on anything like paying a family member. Sounds good, right.
- All that money needs to be accounted for by somebody and reported to the IRS on form 8853. If expenses are over $420 a day (in 2023) that overage is taxable.
- If a family member or friend provides care and is paid over $2,400 a year, they become employees and subject to all employment regulations: Social Security and Medicare taxes. Plus, the employee must report the income during tax season.
So, while the indemnity plan may sound good, remember that it places an additional burden on somebody to do the accounting and reporting. Long-Term Care Insurance is supposed to relieve the family of burdens.