IRS Increases Tax Deduction Limits for Long-Term Care Insurance for 2025
Table of Contents
- Dual Tax Benefits that Increase with Age
- Business and Self-Employed Tax Benefits
- How Much Does LTC Insurance Cost?
- Health Savings Accounts
- Some Hybrid Policies Offer Additional Tax Advantages
- Without LTC Insurance, You are Responsible for Future Long-Term Care Costs
- Long-Term Care: Impact on Families and Finances
Good news for those who have or are considering purchasing Long-Term Care Insurance. The Internal Revenue Service has announced increases in the age-based tax deductible limits for tax year 2025.
Additional tax incentives are especially beneficial during inflationary times. One often-overlooked advantage of Long-Term Care Insurance is its tax deductibility. For 2025, the Internal Revenue Service has increased the maximum amount taxpayers can write off for qualifying LTC Insurance based on age.
For those who are unable to take advantage of the tax deductions, individuals with Health Savings Accounts can use the same age-based brackets to reimburse Long-Term Care Insurance premiums using pre-tax funds from their accounts. These tax benefits further enhance the benefits of these policies.
Jesse Slome, director of the American Association for Long-Term Care Insurance, says the tax deductibility of tax-qualified LTC Insurance premiums remains one of the best-kept secrets in financial planning.
The 2025 deductible limits are significant and few people, especially small and mid-sized business owners, are aware that premiums paid for long-term care insurance may be tax deductible.
Dual Tax Benefits that Increase with Age
Long-Term Care Insurance has attractive tax treatment under Section 7702(b). In addition to the potential tax deductibility, proceeds from qualified Long-Term Care Insurance remain tax-free even if you can deduct the premium. This advantageous tax status can significantly enhance the appeal of owning an LTC policy.
While many people typically obtain coverage in their 40s and 50s, the deduction amounts for younger individuals are more modest, but premiums are also significantly lower when you secure coverage at a younger age.
However, as you age into the other brackets, the available premium, which can be deductible or reimbursable through Health Savings Accounts, also increases.
2025 IRS Long-Term Care Tax Deductions Brackets
| Age Bracket | 2024 Limits | 2025 Limits |
| 40 and under | $470 | $480 |
| 41 - 50 | $880 | $900 |
| 51 - 60 | $1,760 | $1,800 |
| 61 - 70 | $4,710 | $4,810 |
| 71 and older | $5,880 | $6,020 |
Business and Self-Employed Tax Benefits
The tax deductions apply to self-employed taxpayers, including LLCs, PAs, S-corporations, and partnerships; the 2% or more owners of these entities can deduct 100% of the eligible (age-indexed) premiums paid on their behalf, their spouses, and their dependents.
When a C Corporation purchases Long-Term Care Insurance on behalf of any of its employees, spouses, or dependents, the corporation is eligible to take a 100% tax deduction as a business expense on the total of the premiums paid.
Long-Term Care Insurance premiums paid on behalf of non-owner employees, their spouses, and their dependents are generally fully tax-deductible as reasonable business expenses for all other business types.
Again, only qualified Long-Term Care Insurance policy premiums are eligible. Remember that benefits paid under a qualified Long-Term Care Insurance policy are generally excluded from taxable income.
However, some indemnity or cash products that offer daily or monthly benefits without regard to actual expenses have a per diem limit of $420 for the 2025 tax year. Any benefits exceeding this amount may be subject to taxation unless supported by actual bills. However, $420 a day translates to $153,300 or $12,775 a month.
The per diem limit can be important for those with hybrid policies with cash benefits. Always consult a professional tax advisor to evaluate your specific tax circumstances.
How Much Does LTC Insurance Cost?
Premiums for Long-Term Care Insurance vary depending on several factors, including insurance company, age, health, and total benefits within the policy.
If you are considering adding an LTC policy to your retirement plan, LTC News has a comprehensive report on Long-Term Care Insurance premiums with our survey of the major top-rated insurance companies based on age and sample benefits:
Health Savings Accounts
The reimbursable amount through a Health Savings Account (HSA) for Long-Term Care Insurance is based on the age-based IRS chart (above) for allowable tax deductions. However, it's important to note that you cannot claim both a tax deduction and use pre-tax funds for LTC Insurance premiums; you must choose one option.
Many employers now offer HSAs to help reduce healthcare costs for employees, and individuals might not realize that pre-tax money in these accounts can be used to cover qualified LTC Insurance premiums. For 2025, the contribution limits have increased to $4,300 for individual coverage and $8,550 for family coverage, reflecting an upward adjustment from $4,150 and $8,300 in 2024.
Additionally, individuals aged 55 and older can continue to contribute an extra $1,000 as a catch-up contribution.
Beyond Long-Term Care Insurance premiums, HSA funds can also be used for various qualified medical expenses, including deductibles, prescriptions, and over-the-counter medications. Withdrawals for these eligible expenses are tax-free, and the funds grow tax-deferred, allowing you to avoid taxes on money used for qualified health-related costs.
Employer contributions to HSAs are not taxed as income but count toward the annual contribution limit. Unlike Flexible Spending Accounts (FSAs), the funds in an HSA do not expire at the end of the year, allowing you to retain them for future healthcare needs.
What Happens with an HSA After Age 65?
Once you reach age 65, you can use your HSA funds for any purpose, although using them for qualified health and medical expenses remains tax-free. If you use the funds for non-qualified expenses, they will be subject to taxation. Many people continue to utilize their HSA funds for various health-related costs, including:
- LTC Insurance premiums
- Medicare premiums for Parts B, C, and D
- Medicare deductibles, co-pays, and co-insurance
- Dental and vision expenses
- Hearing aids
- Insulin and diabetic supplies
- Over-the-counter medications and medical equipment.
Some Hybrid Policies Offer Additional Tax Advantages
Hybrid Long-Term Care Insurance policies offer more limited tax benefits than traditional plans. These policies typically combine life insurance or annuities with riders for long-term care, offering both long-term care and death benefits.
If your hybrid LTC policy meets federal tax guidelines (IRC Section 7702(b)), a portion of the premium allocated for long-term care may be deductible. Additionally, like traditional Long-Term Care Insurance, the benefits from hybrid policies are generally tax-free.
However, not all insurance companies offering these products can itemize the premiums this way, so it's essential to confirm this with your provider. Life insurance policies that include a chronic illness rider (IRC Section 101(g)) only allow a portion of the death benefit to be accelerated when certain conditions are met. Unfortunately, these policies do not qualify for any tax deductions, and there could be tax consequences when receiving benefits from those types of policies.
While IRC Section 101(g) riders may provide accelerated death benefits for terminal or chronic illnesses, they lack the consumer protections, regulated benefit triggers, and tax incentives associated with qualified Long-Term Care Insurance.
Limited duration or short-term plans, which offer cash indemnity for one to two years, are generally not deductible. However, their benefits remain tax-free based on incurred expenses.
Be sure to speak with an experienced Long-Term Care Insurance specialist who represents the top-rated insurance companies to help you navigate the many options from all the insurance companies that offer long-term care solutions. The LTC Insurance specialists are specially trained to compare LTC Insurance options and provide accurate quotes.
LTC News features a dedicated section to help you understand how Long-Term Care policies work, including the underwriting and policy design processes. This resource can equip you with the knowledge necessary for more informed discussions with a specialist, ultimately enhancing your decision-making when selecting the right policy for your needs.
A Tax if You Don't Own a Long-Term Care Insurance Policy?
Several states are considering joining the State of Washington by adding a payroll tax based on total earned income unless you own a qualified Long-Term Care Insurance policy.
The states will offer a small benefit that can be used for long-term care expenses for those paying the tax. For example, in Washington, the Washington Care benefit is $36,500. Long-term care services are costly and are rising nationwide.
Rate Stabilization Rules for Today's LTC Insurance
Today's Long-Term Care Insurance is not only affordable but also rate-stable. Rate stabilization rules are in place in most states.
Today's LTC Insurance is priced based on the low interest rate environment, which adds additional rate stability. According to actuaries, the chance of future premium increases is small—Future Long-Term Care Insurance Rate Increase Risk Low.
Hybrid Long-Term Care Insurance has guaranteed premiums. While many people who purchase hybrid policies pay off their policy with one single premium, most insurance companies allow policyholders to pay premiums over five, ten, twenty years, or even for a lifetime.
No matter how you pay, hybrid premiums can never increase.
Without LTC Insurance, You are Responsible for Future Long-Term Care Costs
Without Long-Term Care Insurance, you'll need to rely on your income and savings to pay for future long-term care services, or your family may step in as caregivers—neither of which is an ideal situation. The financial and emotional consequences of this choice can be substantial, impacting your family and finances.
Traditional health insurance, including Medicare, only pays for short-term skilled care and nothing for custodial care, which most individuals will require. Medicaid will cover long-term care services for those with limited income and assets.
Long-Term Care: Impact on Families and Finances
The significant demand for long-term care services has led the federal government and many states to offer tax incentives for purchasing qualified Long-Term Care Insurance policies.
Long-term health care presents both financial and familial challenges. With Long-Term Care Insurance, policyholders can choose quality long-term care services that protect their income and assets, helping preserve their lifestyle and legacy. This coverage also allows family members to focus on their relationships rather than taking on caregiver roles. If you're eligible for tax advantages, leveraging them can further reduce the cost of your policy. Even without it, LTC Insurance provides tremendous value and a way to ensure access to quality care without draining assets or burdening those you love.