If you are planning on purchasing long-term care insurance, but haven’t yet, here’s one more reason to get your long-term care policy before the end of the year – tax-benefits. But time is running out for 2009. Since it can take weeks to get your application approved, you’ll have to apply soon to be able to benefit on your 2009 taxes.
When you purchase a tax-qualified long-term care plan, you may benefit from a tax credit or deduction on your state income taxes. About half of the states offer a benefit. Check with your tax advisor or state revenue service for state specific information.
(Here are the rules for Maryland residents: The taxpayer is allowed a one-time credit against the state income tax in an amount equal to 100% of eligible LTCi premium paid. The credit may not exceed $500 for each insured, may not be claimed by more than one taxpayer with respect to the same individual and may not be claimed if the insured was covered by LTCi before July 1 2000. No carryover is allowed. For employers, a credit up to an amount equal to 5% of the costs incurred by the employer during the taxable year for providing LTCi as part of the benefit package. The credit may not exceed $5000 or $100 for each employee covered by LTCi under the benefit package.)
Depending on the amount of your medical expenses in 2009, you may find a federal tax benefit as well since tax-qualified LTCi premiums are considered a medical expense. For an individual who itemizes tax deductions, medical expenses are deductible to the extent that they exceed 7.5% of the individual’s Adjusted Gross Income (AGI). The amount of the LTCi premium treated as a medical expense is limited to the eligible LTCi premiums, as defined by Internal Revenue Code 213(d), based on the age of the insured individual. That portion of the LTCi premium that exceeds the eligible LTCi premium is not included as a medical expense.
Here are the Federal tax limits for 2009 and 2010:
2010 Federal Tax Deductible Limits
| Taxpayer’s Age At End of Tax Year – Deductible Limit | ||
| 40 or less | $ 330 | |
| More than 40 but not more than 50 | $ 620 | |
| More than 50 but not more than 60 | $1,230 | |
| More than 60 but not more than 70 | $3,290 | |
| More than 70 | $4,110 | |
Source: IRS Revenue Procedure: 2009-50
2009 Federal Tax Deductible Limits
|
Taxpayer’s Age At End of Tax Year – Deductible Limit |
|
| 40 or less | $ 320 |
| More than 40 but not more than 50 | $ 600 |
| More than 50 but not more than 60 | $1,190 |
| More than 60 but not more than 70 | $3,180 |
| More than 70 | $3,980 |
Source: IRS Revenue Procedure: 2008-66
If you are self-employed you may be able to deduct 100% of your out-of-pocket long-term care insurance premiums up to the eligible amount without meeting the 7.5% AGI minimum.
There is a good discussion of tax benefits of long-term care insurance at the American Association for Long-term Care Insurance.
And always check with your tax advisor before making any tax-related decision.
Planning for Long-Term Care 