LTC Insurance Tax Deduction Taken by More
Nearly nine million Americans deducted medical and dental expenses which can now include long-term care insurance premium costs according to a report released by the American Association for Long-Term Care Insurance.
"A senior can deduct up to $5,110, or as much as twice that for a couple, of their long-term care insurance cost which is a significant savings," explained Jesse Slome, director of the American Association for Long-Term Care Insurance (AALTCI). The AALTI is a national consumer education and advocacy group which assists consumers and insurance professionals. Slome was sharing a report with top long-term care insurance agents based on the latest data available from the Internal Revenue Service.
Many younger people are also taking advantage of tax deductions. While it usually is harder for younger people to itemize medical related deductions (Long-Term Care Insurance is deducted on the medical line), those who are self-employed or own their own business can also deduct their premiums.
According to Slome, some 8.66 million Americans took itemized deductions when filing their 2015 federal returns.
"While the limits one has to meet to deduct health care related expenses have increased, the number of 2015 tax filers who took medical deductions actually increased by 1.6 percent over the prior year," Slome noted.
Slome shared the relevance of this data to agents who market and sell tax-qualified long-term care insurance.
"While individuals buying long-term care insurance may not be able to deduct their costs in early years, they are far more likely going to do so after retirement," Slome explained.
"After retirement, income drops and often there are significant medical and dental expenses that mean you'll be far more likely to meet the tax deduction limits," said Slome.
Individuals who have certain forms of tax-qualified long-term care insurance can include the cost of premiums paid when calculating eligible medical and dental expenses. The limits are based on age at the close of the taxable year.
"An individual who is more than 70 years old can deduct up to $5,110 of their tax qualified long-term care insurance premiums," Slome shared.
The minimum amount eligible to be included is $410 a year for an individual age 40 or less. Proceeds from these policies are always tax-free even if a person deducts the premium.
In addition, those individuals who have Health Savings Account may use the pre-tax money in those accounts to pay long-term care insurance premiums. The Trump administration wants to expand Health Savings Accounts allowing people to place more money into these accounts.
The AALTCI says not all insurance policies that may provide a long-term care benefit are considered tax qualified and eligible for the tax deductibility. Life insurance policies that provide a long- term care benefit, sometimes referred to as a linked benefit policy, generally do not meet the tax-deductible eligibility requirements.
C Corporations may deduct larger amounts for long-term care insurance and they can use this as a “key-person” benefit if they wish. Otherwise you can deduct the amount of premium based on your attained age at the close of the tax year,
| Attained Age Before Close of Taxable Year | 2017 Limit |
| 40 or less | $410 |
| More than 40 but not more than 50 | $770 |
| More than 50 but not more than 60 | $1,530 |
| More than 60 but not more than 70 | $4,090 |
| More than 70 | $5,110 |
Some states also have tax incentives which are available.
As Long-Term Care Insurance becomes a bigger part of retirement planning the ability to take tax deductions for the premiums make them even more valuable.
LTC Insurance is getting more attention as more people understand the limits to health insurance, Medicare and Medicaid. The Bi-Partisan Policy Center just released a report about long-term care. Its first suggestion was private long-term care insurance.
The report calls for penalty-free (but not tax-free) withdrawal from retirement savings accounts for private Long-Term Care Insurance. Permitting individuals to use retirement savings to purchase “retirement LTCI” would help defray costs, which for many Americans depletes retirement savings.
Long-Term Care Insurance is an affordable way to address the high costs of extended care which is normally not paid by health insurance or Medicare. While Medicaid will pay for long-term custodial care, that program requires you to have few assets in order to qualify. With LTC Insurance a person can protect those assets from the spend-down requirements. The tax incentives make these plans even more affordable.