Long-Term Care Insurance has multiple tax advantages available for individuals, self-employed, and businesses. The Internal Revenue Service has released the maximum amount taxpayers can deduct as owners of qualified LTC Insurance.
When the Internal Revenue Service announced its annual inflation adjustments for the tax year 2022, some observers raised their eyebrows that the IRS did not consider higher inflation rates as part of their calculation.
Long-Term Care Insurance has attractive tax treatment under Section 7702(b). In addition to the potential tax deductibility, proceeds from qualified Long-Term Care Insurance remain tax-free even if you can deduct the premium.
IRS 2022 Tax Deductibility Amounts
For 2022, the maximum amount of qualified Long-Term Care premiums can be eligible as medical expenses have stayed the same from the tax-year 2021 levels. The one exception is age group 61-70 where there was a slight decrease over 2021.
The deductions apply for self-employed taxpayers, including LLC, PA, S-corporations, and partnerships; the 2% or more owners of these entities can deduct 100% of the eligible (age indexed) premiums paid on their behalf, their spouses, and dependents.
LTC Insurance premiums paid on behalf of non-owner employees, their spouses, and their dependents are generally fully tax-deductible as a reasonable business expense.
Only qualified Long-Term Care Insurance policy premiums are eligible. The age-indexed chart below shows the maximum amount that is eligible for the deduction (per person).
|Attained Age Before Close of Tax Year||2021 Tax Year||2022 Tax Year|
|40 or younger||$450||$450|
|71 and older||$5,640||$5,640|
Remember, benefits paid under a qualified Long-Term Care Insurance policy are generally excluded from taxable income. However, some indemnity or cash products that pay a daily or monthly benefit without regard to actual bills are subject to a per diem limitation of $390 a day (down from $400 a day in 2021). Unless there are bills to support the higher amount, benefits over that amount are subject to taxation.
Health Savings Accounts
Many employers are offering Health Savings Accounts as a way to lower the cost of health insurance. Many people are unaware that the pre-tax money in a Health Savings Account can be used to pay for qualified Long-Term Care Insurance premiums.
The reimbursable amount through your HSA is based on the same LTC Insurance allowed tax deduction aged based IRS chart.
For 2022 there are higher HSA contribution limits available. You can contribute $3,650 for individual coverage for 2022, up from $3,600 for 2021, or $7,300 for family coverage, up from $7,200 for 2021.
For those age 55 and older, you are allowed an additional $1000 contribution for 'catch-up.'
Employer HSA contributions are not treated as taxable income but do count toward employees' annual contribution limit.
What Happens After Age 65?
Once you turn age 65, you can use the funds in the HSA in any way you wish. While you are no longer required to use the HSA funds only for qualified health care expenses and Long-Term Care Insurance premiums, many people will often continue to do so since the money comes out tax-free.
Plus, you get to use the pre-tax money in the account to also pay for your Medicare Supplement.
Some Hybrid Policies Have Additional Tax Advantages
Hybrid Long-Term Care Insurance policies have more limited tax advantages, and 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.
As long as the hybrid policy you own meetings federal tax guidelines (IRC Section 7702(b), a portion of the premium dedicated to long-term care may be deductible. The benefits from hybrid policies, like traditional Long-Term Care Insurance, come tax-free.
Not every insurance company that offers this type of product can break out the premium in this way. Check with the insurance company.
Life insurance policies that have a chronic illness rider (IRC Section 101(g), only accelerate the death benefit when a person meets the benefit trigger.
IRC Section 101(g) riders will sometimes provide accelerated death benefits for terminal illness or chronic illness. The trigger for these products makes it more difficult to receive benefits for extended care. Some of these policies also exclude benefits for cognitive supervision. These plans also lack the consumer protections mandated by tax-qualified Long-Term Care Insurance that meet the rules under Section 7702(b). These plans would not be eligible for tax deductions.
Limited duration, or short-term plans, which provide a one or two-year long-term care benefit, also are not generally deductible. Still, their benefits remain tax-free based on actual expenses being incurred.
Always consult a professional tax advisor to review your specific situation.
Tax if You Don't Own a Long-Term Care Insurance Policy
Several states are considering joining the State of Washington by adding a payroll tax based on total earned income unless you own a qualified Long-Term Care Insurance policy. In Washington, unless you have a policy, the tax will also make you eligible for a very minimal state-provided benefit - click here to read more on the Washington page of LTC NEWS.
Rate Stabilization Rules for Today's LTC Insurance
Today's Long-Term Care Insurance is not only affordable but is rate stable. Rate stabilization rules are in place in most states. Find your state by clicking here.
Today's policies are priced based on the extreme low-interest-rate environment that adds additional rate stability. The chance of future premium increases in the future is small – read the article by clicking here.
Hybrid Long-Term Care Insurance either has one ‘single’ premium (no rate increase possible) or premiums that can be annualized for life or for a period of years. Hybrid premiums cannot increase by contract.
Health Insurance and Medicare Pay Little or Nothing Toward LTC
Without Long-Term Care Insurance, you will pay for future long-term health care from income and savings, or your family will become caregivers. In some situations, you may have both paid care and family caregivers. Neither option is ideal, and the consequences on family and finances can be enormous.
Affordable Long-Term Care Insurance safeguards your retirement accounts (401(k) IRA SEP) and other assets as it reduces the stress otherwise placed on your family members.
Traditional health insurance, including Medicare and supplements, will only pay for a small amount of skilled care and nothing toward custodial care which is the type of care most people will require. Medicaid will pay for long-term care services if you have little or no income or assets.
Cost of Long-Term Health Care Depends on Where You Live
Long-term health care is costly and gets more expensive every year. Increasing demand for long-term care services and higher labor costs make the financial impact of future care even greater.
The cost of care services varies depending on where you live, and the type of services you require - Cost of Care Calculator - Choose Your State | LTC News.
Premiums are based on several factors, including the age at the time you purchase coverage, health, family history, and the total amount of benefits being purchased. Premiums for the same benefits can vary over 100% between insurance companies.
Insurance companies must file their products and premiums with the insurance department in each state. No individual agent, agency, or advisor can provide a consumer with 'special deals.'
LTC Specialists Can Be Very Helpful in Finding Affordable Coverage
The best time to obtain coverage is well before your retirement, ideally in your 40s or 50s, to take advantage of low premiums and the most affordable options.
Since there are many options and types of available plans, you should seek a qualified Long-Term Care Insurance specialist to help you navigate these options and help you find the best coverage at the best value.
You can find a trusted and experienced LTC Insurance specialist by clicking here.
Key Part of Retirement Planning
Long-Term Care Insurance continues to be an outstanding option for American families to safeguard income and assets in addition to reducing future stress and burdens otherwise placed on their family members.
With the increasing costs of long-term health care placing financial and emotional burdens on American families, Long-Term Care Insurance has become an even more significant part of retirement planning.
Long-Term Care Insurance pays for all levels of extended care services, including custodial care (help with daily living activities or supervision due to cognitive decline).
LTC Insurance Pays for More Than Just Nursing Homes
Many people think of LTC Insurance as 'nursing home insurance' even though the policies pay benefits for more than just nursing homes. Policies pay for adult day care centers, assisted living facilities, memory care, and perhaps most importantly, in-home care,
In-home care is a professional non-medical caregiving service that allows seniors - others who require ongoing care - to stay in the comfort of their own homes, prolong their active lifestyles and preserve their health for as long as safely possible.
Studies over the last decade show that nearly half of Americans who reach 65 will need some form of assistance to take care of themselves. Once a person gets past age 40, they start seeing changes in their health, and their bodies begin to deteriorate. At older ages, we start seeing a decline in our cognitive skills as well.
Long-Term Care Affects Families and Finances
With so many people needing long-term care services and supports, you can understand why the federal government, and many states, offer tax incentives to help you purchase a qualified Long-Term Care Insurance policy.
Yet, not everyone is aware of the tax advantages - both federal and some states - making these policies even more affordable to own.
The problem of long-term health care is both a cash flow issue and a family issue. Owners of Long-Term Care Insurance can access their choice of quality care services, protecting income and assets, preserving lifestyle, and maintaining their legacy. However, it also allows your loved ones to have the time to be family instead of caregivers.
If you are eligible for tax advantages, use them to make your policy even more affordable.
About the Author
An LTC News author focusing on long-term care and aging.
Contributor since August 21st, 2017
LTC Insurance safeguards your income and assets so you can maintain your lifestyle and preserve your legacy. But, perhaps as important as anything else, Long-Term Care Insurance gives your loved ones the time to be family, reducing the stress and anxiety otherwise placed on them.
The time to obtain coverage is before retirement, ideally in your 40s or 50s, when premiums are lower, and your health is better.
Available Resources on LTC NEWS
LTC NEWS offers several tools and resources to help you in your research for a planning solution or help your family find the appropriate care for a loved one at the time of crisis.
To help you plan for the future costs and burdens of changing health and aging, LTC NEWS can put together several resources, including:
- The LTC NEWS Cost of Care Calculator will show you the financial impact of long-term health care where you live. It will also show you state-specific information on tax benefits, care options, rules, and more.
- The Ultimate Long-Term Care Guide is an outstanding read to help you get a good overview of the topic area.
- Compare the major insurance companies that offer Long-Term Care Insurance products here - Top Insurers for Long-Term Care Insurance | LTC News.
- A detailed tax guide that includes available tax incentives can be found by reviewing the Long-Term Care Tax Benefits Guide.
Find all the resources on LTC NEWS - Resources for Long-Term Care Planning | LTC News.
Seek Professional Advice
Experts suggest using a qualified Long-Term Care Insurance specialist to help you navigate the many options available to you and your family. Insurance rates are regulated, so no insurance agent, agency, or financial advisor can give you special deals. However, premiums do vary over 100% between insurance companies for the same coverage.
A specialist who works with the top companies can match your age, health, family history, and other factors and find you the best coverage at the best value. A specialist will save you money, and you will have the peace of mind knowing they are making the appropriate recommendations - Work With a Specialist | LTC News.
Find Quality Caregivers and Long-Term Care Facilities
If your parent or loved one needs care now - or soon - you will need to find the appropriate care in the right setting depending on their needs.
Take a moment and read -
Get Expert Help Filing an LTC Insurance Claim
LTC NEWS provides free assistance with no obligation to help you, or a loved one complete the claim's process with your Long-Term Care Insurance policy. You can also support finding quality caregivers and get recommendations for a proper care plan, whether a person has a policy or not. - Filing a Long-Term Care Insurance Claim | LTC News.
Benefits of Reverse Mortgages
Today's reverse mortgages for those aged 62 and older could be an ideal resource to fund a Long-Term Care Insurance policy OR even provide money to pay for care if you, or a loved one, already needs help and assistance.
Some people have much of their savings invested in their homes. With today's reverse mortgages, you can find ways to fund care solutions, care itself, even help with cash flow during your retirement.
Learn more by asking questions to an expert. LTC NEWS columnist and host of the TV Show "62 Who Knew" will answer your questions regarding caregiving, aging, health, retirement planning, long-term care, and reverse mortgages.
Just "Ask Mike." - Reverse Mortgages | LTC News.
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