Tax Deductions for 2019 Long-Term Care Insurance Announced by IRS

The IRS has announced the 2019 tax incentives for new or existing policies. These tax breaks give American’s extra incentive to plan for costs & burdens of aging.

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Tax Deductions for 2019 Long-Term Care Insurance Announced by IRS
5 Min Read November 17th, 2018 Updated:March 21st, 2020


Due to the virus crisis the deadline for filing your tax return has been postponed to July 15, 2020. You will have the additional 90 days without penalties or interest.

There are tax incentives available for both individuals and business owners when they plan in advance for the financial costs and burdens that come with longevity. For many American families affordable Long-Term Care Insurance will safeguard retirement accounts and income from the very expensive costs of extended health care. Tax incentives make it even more affordable.

You May Have Personal Experience with Long-Term Care

If you are a member of Generation X, a Late-Boomer or a Baby Boomer, you probably have some experience with a person you know who needs or needed help with activities-of-daily living or supervision due to memory loss. These long-term care services and supports are expensive and the stress and burdens on loved ones are high.

These are the reasons why Americans are turning to Long-Term Care Insurance to provide the resources for quality care in the setting they desire. This way they can safeguard their retirement accounts and reduce the tremendous stress placed on family members.

This is why the federal government, and some states, offer tax incentives to encourage consumers to purchase and maintain Long-Term Care Insurance.  Extensive tax incentives exist for many people.

Get the Tax Advantages That are Available for You

While the Trump Administration, and others in Washington, have flirted with additional tax incentives, the ones that are available are still significant.  The Internal Revenue Service (IRS) has announced the 2019 tax deduction schedule for Long-Term Care Insurance.

These insurance policies have attractive tax treatment under IRC 7702(b). Premiums can be tax deductible if you have enough medical related deductions, you are self-employed or own an LLC, S-Corporation or C-Corporation.

C-Corporations can deduct 100% of the premium. Otherwise, the IRS publishes a chart each year which indicates the amount deductible based on age.

The IRS has Increased These Amounts for 2019

Attained Age Before Close of Taxable Year 2019 Limit 2018 Limit 2017 Limit
40 or less $420 $420 $410
More than 40 but not more than 50 $790 $780 $770
More than 50 but not more than 1,580 $1,560 $1,530
More than 60 but not more than 70 4,220 $4,160 $4,090
More than 70 $5,270 $5,200 $5,110

Jesse Slome, executive director of the American Association for Long-Term Care Insurance (AALTCI), national consumer education and advocacy group, notes that the special tax advantages approved by the IRS are only available with tax-qualified health-based Long-Term Care Insurance. 

Some Hybrid Policies Have Additional Tax Advantages 

Other types of policies exist which have more limited tax advantages including asset-based or “hybrid" policies. These plans are life insurance policies or annuities with riders for long-term care. In addition to the long-term care benefit, there is a death benefit. Since these plans follow federal tax guidelines (IRC 7702(b), a portion of the premium dedicated to long-term care may be deductible. Benefits, like traditional Long-Term Care Insurance, come tax-free.

However, life insurance policies with a rider for long-term care, which require a person to be terminal before qualifying for long-term care benefits, or do not meet the federal guidelines, have no tax deductibility.

Limited duration, or short-term plans, which provide a one or two-year long-term care benefit also are not deductible, but their benefits remain tax-free.

“When you are younger and working, the (tax) benefit is nominal if any but once you retire and may have other health expenses, the tax savings benefits could be huge.”

Jesse Slome, executive director of the American Association for Long-Term Care Insurance (AALTCI)

As an Itemized Deduction

According to the AALTCI analysis, many older Americans who have health expenses can add their Long-Term Care Insurance premium costs to qualify for the IRS approved deductions.

Self Employed and Businesses 

Those people who are self-employed or own their own business can deduct the premium as a business expense. Benefits remain tax-free even if you take a tax deduction. If you have employees, unlike other insurance benefits, you do not have to offer the benefit to anyone but you can elect to offer to certain individuals as a “golden parachute”.

If you have a Health Savings Account you may use the pre-tax money in that account to reimburse yourself the cost of the premium, up to the IRS tax-chart above. You cannot, however, take a tax deduction and use pre-tax money in a Health Savings Account.

You can find the tax incentives available, including the cost of care and other information on Long-Term Care in your state by clicking here.

Experts suggest planning for the financial costs and burdens of aging prior to retirement when you normally have better health and premiums are very affordable. The costs of long-term care services can drain retirement savings. Many policies include professional case management. This helps the family find quality caregivers and develop an appropriate plan of care. This reduces the amount of burden that is otherwise placed on the family.

Rate Stabilization Rules for Today's Long-Term Care Insurance

Today’s Long-Term Care Insurance is not only affordable but is rate stable. Rate stabilization rules are in place in most states. Plus, today’s policies are priced based on the extreme low-interest-rate environment. The chance of future premium increases in the future is small – read the article by clicking here.

If you have a Long-Term Care policy already be sure to tell your tax advisor. Otherwise, seek the help of an experienced Long-Term Care specialist. They can help shop for the best coverage and design an appropriate plan based on your age, health, financial plan, and concerns. Few financial advisors or general insurance agents have this level of experience or knowledge. In addition, 45 states offer special Long-Term Care Partnership policies which provide additional dollar-for-dollar asset protection.

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About the Author

An LTC News author focusing on long-term care and aging.

LTC News Contributor James Kelly

James Kelly

Contributor since August 21st, 2017

Editor's Note

The fact is Long-Term Care Insurance is easy, affordable and rate stable income and asset protection. Many people are not aware that these policies are custom designed. Be careful, however, since premiums can vary over 100% between companies for the exact same coverage. This is why you pursue the help of a qualified Long-Term Care Insurance specialist. Find a specialist by clicking here.

Items to Discuss with a Long-Term Care Specialist:

  • Partnership – Most states offer special policies that provide dollar-for-dollar asset protection. The Long-Term Care Insurance Partnership Program might be one of the best-kept secrets in retirement planning. Make sure the specialist explains this program and how it might help you.
  • Tax incentives – There are federal tax incentives available for some people. If you own your own business be sure to ask.
  • Health Savings Accounts – If you have an HSA you can use the pre-tax money in your account to pay for the premium.
  • Asset-Based or Hybrid policies – These are life insurance or annuities with a rider for long-term care. Careful, only a handful are actually a long-term care benefit. However, one of these policies can provide you with the flexibility of both a long-term care benefit or a death benefit. They are expensive but can be paid with a single premium.
  • Health and Family History - Make sure the specialist asks you detailed questions about your health, family history, and retirement plans. Underwriting criteria varies with each insurance company. If they are not asking you detailed questions then find another specialist.

It is always best to start planning before you retire. Once you have your plan in place you will enjoy peace-of-mind and your family will thank you decades from now.

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