All LTC Insurance plans available in the market are either tax-qualified or non-tax-qualified. The bulk of these policies happen to be IRS tax-qualified though. This implies that the insurance contract conforms to the Health Insurance Portability and Accountability Act (HIPAA) of 1996, and IRS rules.
Is LTC Tax Deductible?
Various ways exist in which you might be able to tax-deduct your LTC Insurance premiums. The number one method is to own a Health Savings Account (HSA).
In 2014 and 2015, the Federal LTC Insurance Tax Deductible Limits were as Follows
(Source: https://www.irs.gov/pub/irs-drop/RP-12-41.pdf)
| Taxpayer’s Age (at the end of the tax year) | 2014 | 2015 |
| 40 or below | $370 | $380 |
| Over 40 but not over 50 | $700 | $710 |
| Over 50 but not over 60 | $1400 | $1430 |
| Over 60 but not over 70 | $3720 | $3800 |
| Over 70 | $4660 | $4750 |
Small Business and Self Employed LTC Insurance Tax Deductibles
Business owners may deduct 100 percent of their dental, medical, and qualified LTC insurance, their spouse, and dependants if they meet the following conditions:
- Self employed person netting a profit that’s reported on Schedules C, C-EZ, or F.
- Self employed partner raking in net earnings reported on Schedules K-1 (Form 1065), box 14, code A.
- Shareholder who owns over 2 percent of outstanding stock in an S-corporation and whose wages from this corporation are reported on the W-2 Form.
Keep in mind that the insurance policy should be created under the business name. You may qualify for this deduction regardless of whether you did pay for the insurance yourself, or in the name of a partnership or S Corporation you’re affiliated with. You need to have cited the premiums under your gross income.
Tax Qualified LTC Insurance
Is LTCI tax deductible? Yes, but only if it’s tax qualified. The HIPAA rule stipulates that qualified LTC Insurance must be subjected to the similar tax treatment to health and accident insurance.
LTC policies initiated before 1st January 1997 are automatically qualified by the new rule (HIPAA).
Long Term Care Insurance policies are regarded as qualified plans just provided they have an insurance commissioner’s approval in the state where they’re sold. These LTC plans must however adhere to the consumer friendliness rules that were laid down by NAIC (National Association of Insurance Commissioners).
Definition of Services & Benefit
- LTC Benefits are paid for only qualified services, which means necessary preventive, diagnostic, therapeutic, mitigating, treating and rehabilitative services, as well as personal care and any maintenance services required by “chronically ill” persons.
- The services should be provided by in accordance with the care plan authorized by licensed practitioners in the healthcare industry (e.g. the insured’s physician).
- The policy should furnish buyers with the option of inflation-protection as well as non-forfeiture protection. The buyer doesn’t have to add these two features to their LTC policy though.
How to Qualify
- The LTC policy should provide that cognitive impairment and daily living activities are triggers to accessing benefits. The LTC policy must not demand a medical need trigger.
- Under the ADLs (Activities of Daily Living) benefit trigger, LTC policy should pay benefits whenever the holder is not able to a minimum of 2 out of 6 stipulated ADLs. A licensed medical practitioner should certify this, and the need for assistance with ADLs should continue for minimum 3 months. HIPAA rule equalized the required ADLs for evaluation as eating, dressing, bathing, toileting, maintaining continence and transferring.
- Under the cognitive impairment trigger, the coverage starts when the person is certified as needing significant supervision to safeguard them from any threats to safety and health.
Other Consumer Protections
- The policy ought be granted as non-cancellable or guaranteed renewable.
- The policy should (compulsory) factor in a 3rd party notifications or any other measure to cater for lapse protection.
LTC Insurance Tax Deductible Details
IRS has clearly stated tax treatment for LTC Insurance. Premiums paid for LTC Insurance as well as personal-funded expenses for LTC are tax deductible as medical expenses. This is as long as the individual taxpayer’s qualified medical expense are more than 10% of their AGI (Adjusted Gross Income). Note that prior to Obamacare, this was only 7.5%!
Age and Premium Limitations for LTC Insurance in 2013 and 2014
Destructibility of all qualified LTC Insurance premiums is capped by the taxpayer’s age. The IRS adjusts these limits for inflation on an annual basis.
How do I exclude received benefits? Take a look at Publication 525 for more information.