Raising Awareness of – and Deductions for Long Term Care Insurance

The bulk of November sits snugly between the frights of Halloween and the gathering-the-family-festival of Thanksgiving. So – since there are few more frightening things for a family to experience than a need for extended long term care – perhaps it’s fitting that November is also National Long Term Care Insurance Awareness Month!

Agents and insurance company claims department employees can vouch for the fact that calls about claims spike around the holidays. Many speculate that – when families gather – adult children are sometimes confronted with the difficult reality that mom and/or dad is in need of care. This heightened claims activity starts in late November and continues through the first quarter of the following year.

If your parents have a long term care insurance policy, do you know where it is? And, if you have a policy, do your kids (or does someone else close to you) know where it is? We’re aware that we won’t be filling out our own claims paperwork for life insurance! However, sometimes we fail to consider that it will be someone else doing our long term care insurance claim filing.

Enough about awareness…let’s talk about deductions!

The federal tax deduction for long term care insurance premiums for individuals is limited to those who can take a deduction for unreimbursed medical expenses.

Long term care insurance premiums for ‘qualified’ policies are able to be included in medical expenses, to the age-based limits shown below (the 2015 limits were just announced). When unreimbursed medical expenses (including Medicare premiums) for the taxpayer, his or her spouse, and other dependents exceed 10 percent of the taxpayer’s adjusted gross income (or 7.5 percent for taxpayers age 65+ [through 2016]), they are deductible

Attained age on 12-31-15                                            Maximum deduction for taxable year

40 or less                                                                          $380
More than 40 but not more than 50                             $710
More than 50 but not more than 60                             $1,430
More than 60 but not more than 70                             $3,800
More than 70                                                                   $4,750

Self-employed business owners showing a profit can take a deduction up to the age-based maximum, regardless of income or medical expenses.

There is only one other changeable number as relates to federal taxes and long term care insurance, and it relates to taxation of benefits. Benefits received from qualified per diem or indemnity policy may be taxable if they pay an amount that exceeds the cost of an insured’s actual qualified long term care expenses. Proceeds from these policies are only taxable to the extent that they either exceed the cost of qualified care expenses or exceed $330 per day (unchanged from 2014), whichever is greater.

And finally, an often-overlooked tax advantage is the fact that LTCI premiums for a qualified policy (the vast majority of policies are qualified) are a qualified medical expense under Health Savings Accounts. And yes, a self-employed taxpayer may take an age-based deduction, and use her HSA to pay the balance.

http://www.irs.gov/pub/irs-drop/rp-14-61.pdf (see page 16)
IRS publication about Health Savings Accounts – used to pay LTCI premiums (see page 8)