Beginning with the 2010 tax year, Lincoln became required to report the charges for qualified long-term care insurance riders that are paid out of the cash value of life insurance policies to the IRS.
2013 MoneyGuard® Qualified LTC Rider Tax reporting
Beginning with the 2010 tax year, Lincoln became required to report the charges for qualified long-term care insurance riders that are paid out of the cash value of life insurance policies to the Internal Revenue Service. These charges reduce investment in the contract (cost basis) first, and then reduce any income on the contract, however, in either case the charges are not treated as distributions of taxable income for federal income tax purposes.
On form 1099R the following items will be indicated:
• In Box 7 for qualified long term care riders, there will be a distribution code of a “W.” This code indicates that the amount shown as a Gross Distribution in Box 1 is related to “charges or payments for purchasing qualified long-term care insurance contracts under combined arrangements.”
• The total amount of the long-term care rider charges for 2013 will be shown in Box 1; this amount is not treated as taxable income for federal income tax purposes, and as indicated on page 2 of the form, “you need not report these amounts on your tax return.”
• Box 8 will indicate the amount of cost basis has been reduced due to charges or payments for qualified long-term care insurance contracts.
In the event the policyowner took a distribution from their contract during 2013, they may receive a separate 1099-R. There will be a taxable amount listed in box 2a and the distribution code in Box 7 will not be identified as a “W.” The policyowner should consult their tax advisor to determine whether any such amount is taxable income to them.
For these policies with the qualified long-term care rider, a separate long-term care calculation is not necessary, as the total amount is indicated in box 1. For policies with non-qualified riders, or qualified riders not affected by the Pension Protection Act of 2006, long-term care calculations can be requested starting December 16, 2013 for processing after January 1, 2014.
Questions can be addressed to the MoneyGuard® contact center: (800) 487-1485.