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Chapter 6. Income Taxes > Untaxed Income

Untaxed Income

Some of the income you receive is not counted for tax purposes. In 2003, the year in which this is being written, payments you receive from a qualified long-term care insurance policy are not taxable so long as any amounts you receive more than $220 a day are not more than the actual cost of your care. In a rare instance of Congressional wisdom, this figure is automatically adjusted for inflation annually. A qualified long-term-care insurance policy is one that is guaranteed to be renewable, does not have any cash surrender value, limits the use of any refunds and dividends to reducing future premiums or increasing benefits, and does not pay for services that would be reimbursed by Medicare.

In addition, payments you receive from a disability insurance policy may not be countable for tax purposes. As usual, the code splits hairs in a way that would make a hairdresser proud. If the premiums on your disability insurance were paid by you, then the amounts you receive from the policy are not counted at all. But if premiums were paid by your employer and not included in your taxable income when paid, then the money you receive from your disability insurance is countable income. And if you paid some of the premium, well, you know the drill, the IRS will calculate the amount of your disability benefit that relates to the amount of the premium you did not pay and will tax you on it. Obviously the IRS never heard of Henry David Thoreau’s motto of “Simplify, simplify, simplify!”


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