A long-term care insurance premium, or a part thereof, may be deductible from federal income taxes as a medical expense. Acknowledging that it can’t assume the primary role in paying for Americans’ long-term health care, the federal government offers tax incentives to encourage middle-aged and older taxpayers to assume responsibility for their future health care needs. The Health Insurance Portability and Accountability Act of 1996 (HIPAA) included provisions for favorable tax treatment of Long-Term Care insurance (LTCi) contracts that meet statutory qualifications.
Because tax-qualified LTCi premiums are considered a medical expense, taxpayers that itemize tax deductions may deduct medical expenses, and therefore LTCis, to the extent that they exceed the current amount required to meet the individual’s Adjusted Gross Income. I.R.C.§ 213(d) limits the amount of LTCi premiums that may be treated as a medical expense based upon the age of the insured. Any amount of the LTCi premium that exceeds that which is eligible is therefore not included as a medical expense.
Individual taxpayers can treat premiums paid for tax-qualified long-term care insurance for themselves, their spouse or any tax dependents (such as parents) as personal medical expenses.
Also, the ability to deduct the cost of long-term care insurance premiums makes starting a business and being self-employed very advantageous. Self-employed individuals may deduct the full eligible premium amounts for themselves, their spouses and dependents provided such deductions do not exceed net income.
The yearly maximum deductible amount for each individual is indexed and increased each year for inflation. For 2016 (2015 amounts are in parentheses), taxpayers aged 40 or less may deduct up to $390 ($380). For those 41-50, the limit is $730 ($710). Aged 51-60 allows $1,460 ($1,430) to be deducted annually. For those 61-70, the deductible amount is $3,900 ($3,800), and for those 71 and older it is $4,870 ($4,750).
If you have questions about Long-Term Care insurance (LTCi) insurance, especially whether your policy’s premiums qualify as a medical expense and therefore as a deduction, call THE TAX EXPERTS at the Thorgood Law Firm www.thorgoodlaw.com. For a FREE consultation call 212-490-0704.
