Is Long-Term Care Tax Deductible?
Many people don’t know that the expenses they pay for receiving long-term care services, or the premiums they pay for long-term care insurance, may be tax deductible or make them eligible for state tax credits. Under federal law and in most states, both long-term care services and all, or part, of long-term care insurance premiums are treated the same as medical expenses and can be deductible under certain circumstances.
Current Federal Tax Deductions
In 1996 Congress passed the Health Insurance Portability and Accountability Act (HIPAA). This law allows a tax deduction for many types of long-term care services - treating them the same as medical expenses - so that if your overall expenses for medical and/or long term care costs exceed 7.5 percent of your Adjusted Gross Income you can take a deduction for the amount over 7.5 percent.
HIPAA also provides favorable tax treatment for long term care insurance policies meeting certain federal standards. The good news is that nearly all of the policies sold today meet those standards. These policies are called federally tax-qualified policies, or TQ for short.
How do you know if your policy is federally tax-qualified? It should say so right on the cover page of the policy. (Yes, this means you should not only know where you keep the policy, but you should read it!) Typically it would say something like this:
IMPORTANT NOTICE: This Policy is intended to be a tax qualified long term care insurance contract under Section 7702B (b) of the Internal Revenue Code of 1986 (as amended by the Health Insurance Portability and Accountability Act of 1996 -–Public Law 104-191).
People with tax-qualified (called TQ) long-term care insurance policies may benefit in two ways. First, the premiums you pay are defined as medical expenses in accordance with the IRS code. That means that at least part of the cost of premiums can be combined with other itemized medical expenses, including long-term care expenses (not just insurance) that are not reimbursed by insurance or other persons. The limits on the amount of the premium you can deduct are based on your age, and are noted in the chart below.
Second, reimbursements for benefits you receive under a TQ long-term care insurance policy are not taxable. Like health insurance or life insurance, benefits you receive from long-term care coverage are excluded from your income, and are not taxable.
Maximum Deductions for Qualified Long-Term Care Insurance Premiums
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Attained Age Before Close of Year
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2009
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2010
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40 years old or less
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$ 320
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$ 330
|
|
More than 40 years old but no more than 50 years old
|
$ 600
|
$ 620
|
|
More than 50 years old but no more than 60 years old
|
$1,190
|
$1,230
|
|
More than 60 years old but no more than 70 years old
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$3,180
|
$3,290
|
|
More than 70 years old
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$3,980
|
$4,110
|
For More Information
It is advisable to consult a tax accountant or federal or state office for specific information about how these tax provisions affect you. For more specific information on federal tax provisions, consult a tax professional or contact the Internal Revenue Services (IRS). The IRS site,http://www.irs.gov/ [offsite], provides information and publications that can help you understand what you can deduct. You can also call toll free – 1-800-829-1040 – to talk to an IRS representative Monday-Friday, 7:00am to 10:00pm. In addition, you may visit your local IRS office. You can find your local office at www.irs.gov/localcontacts/index.html [offsite], or by calling the toll free number.
For state information, you can contact your State Office of Revenue and Taxation. You can find their contact information on your state’s government website at http://www.usa.gov/Agencies/State_and_Territories.shtml [offsite] .