Long-Term Care Insurance can be a great way to protect yourself from the cost of long-term care. But did you know Long-Term Care Insurance policies are eligible for various tax benefits, including tax deductions?
LTC News wants to help you learn about long-term care and Long-Term Care Insurance. We work with experts to help you stay informed on key topics and the latest long-term care news.
This article explores tax deductions and incentives available to those with Long-Term Care Insurance policies. We'll explain how you can tell if you’re eligible for deductions and how to access those benefits. We’ll also discuss different tax deductions for self-employed individuals.
Is Long-Term Care Insurance Tax Deductible?
Yes, Long-Term Care Insurance is tax deductible for many people. Certain individuals can even save hundreds each year on their taxes.
But not everyone is eligible for the same Long-Term Care Insurance tax deductions. Your deductible amount depends on how you file your taxes. More specifically, it depends on whether you're filing as an individual or a business/self-employed individual.
For the 2023 tax year, the IRS allows individuals to deduct a portion of their premiums as medical expenses. This portion is subject to medical deduction limits based on age and income.
Self-employed individuals or businesses can deduct 100% of their Long-Term Care Insurance premiums as a business expense. Tax-deductible business expenses are not subject to the same limits as medical expenses.
Throughout this article, we'll dig deeper into tax deduction rules for individuals and businesses. But first, it's important to find out if you have a tax-qualified Long-Term Care Insurance policy.
Is Your Long-Term Care Insurance Policy Tax-Qualified?
It may surprise you that not all policies qualify for tax deductions. Only Long-Term Care Insurance policies that meet specific federal guidelines under Section 7702(b) qualify for tax deductions and incentives.
The government regulates Long-Term Care Insurance policies to ensure fair coverage and pricing. The first page of every insurance policy should disclose whether it meets federal guidelines under Section 7702(b). Any policy that meets these guidelines is tax-qualified. Any policy that does not cannot be legally considered Long-Term Care Insurance.
Assuming your policy meets these guidelines, you’ll also have to comply with tax deduction limits and restrictions. In the next section, we’ll cover tax deduction limits for individuals. Then, we’ll explain how tax deductions work differently for self-employed individuals and businesses.
Long-Term Care Insurance Tax Deductions For Individuals
The table below covers the total amount of Long-Term Care Insurance premiums individuals can deduct from their federal income taxes as medical expenses. For questions or concerns about the information below, you should reach out to a tax professional.
Please keep in mind this chart is for those filing personal federal income taxes, not for self-employed individuals or business owners. To learn more, you can jump to our section on tax deductions for businesses.
|Age attained before the close of the tax year
||2022 Tax Year
||2023 Tax Year
|40 or younger
|41 - 50
|51 - 60
|61 - 70
|71 or older
Only some individuals can take advantage of Long-Term Care Insurance tax deductions. To qualify for tax deductions as an individual, your total medical expenses (including your Long-Term Care Insurance premium) must be over 7.5% of your adjusted gross income (AGI).
But your income isn’t the only thing that affects your ability to get tax deductions. The way you file your taxes can also impact your access to tax deductions. Below we’ll explain how you can deduct premiums using itemized deductions.
How To Deduct Your Long-Term Care Insurance Premium: Standard vs. Itemized Tax Deductions
When you file your taxes, you'll have a choice to file standard or itemized deductions. But what exactly do these terms mean?
A standard deduction is a fixed deduction amount determined by the IRS. You can subtract that predetermined amount from your income taxes without providing receipts or documented expenses.
An itemized deduction is a variable deduction amount based on your documented expenses. You can subtract that unique amount from your income taxes if you can provide valid receipts.
To qualify for Long-Term Care Insurance deductions as an individual, you must itemize all your medical expenses. Itemizing your expenses means providing evidence, such as receipts or documents, that prove what you’ve paid towards care throughout the year.
The total itemized bill must be over 7.5% of your AGI and be more than the standard deduction amount.
Tax-deductible medical expenses include more than just Long-Term Care Insurance premiums. This total amount can include, but isn’t limited to:
Fees for doctors, psychologists, practitioners, caregivers, etc.
Payments to care facilities, rehabilitation centers, or for care services
Payments for prescription medications
Payments for accessibility-aiding items like glasses or contacts, hearing aids, wheelchairs, false teeth, etc.
Fees for transportation to and from medical facilities
Insurance premiums for health or Long-Term Care Insurance
You can visit the IRS’s medical deductions page to learn more about potential qualifying medical expenses. If you have questions or concerns about documenting your care costs, you should contact a qualified tax professional. A tax professional can help you file correctly to qualify for Long-Term Care Insurance tax deductions.
Long-Term Care Insurance Tax Deductions For Self-Employed Individuals & Businesses
In the sections above, we focused on tax deductions for individuals. But did you know that business owners, sole proprietors, and self-employed individuals may be eligible to deduct all or most of their Long-Term Care Insurance premiums?
Businesses can make large deductions because the premium counts as a business expense. Individuals have limited deductions because their premiums count as medical expenses. Medical expenses are subject to specific limits, but business expenses are more flexible.
C-Corporations can deduct their entire Long-Term Care Insurance premium as a business expense. Companies can also decide which employees are eligible for the LTC Insurance plan. Some companies may use this to their advantage and limit coverage to only a few employees or a certain class of employees.
Sole proprietors, S-Corps, and LLCs can also deduct their and their spouse's Long-Term Care Insurance premiums from their taxes. Deduction amounts depend on an age-based chart published by the IRS each year.
If you have more questions, consider meeting with a qualified tax professional. Tax experts can give you information specific to your situation, which you may not be able to find online. Tax experts can also ensure you fill out your forms correctly and maximize your deductions.
RELATED: Long-Term Care Tax Benefits Guide
Other Important Long-Term Care Insurance Tax Benefits
Did you know that all the benefits your policy pays out are tax-free, even if you deducted the premium as a tax deduction? Most Long-Term Care Insurance policies work this way, with the exception of specific cash indemnity policies. (Seek a tax professional for more specific details on those.)
On top of tax-free benefits, you should also be aware of a few other deductions and incentives. Different incentives will apply to different people. For example, some states offer more incentives than others. We’ll explain more below.
Some States Offer Extra Long-Term Care Insurance Incentives
Some states offer tax benefits to encourage people to plan and buy Long-Term Care Insurance. In these states, you may be able to take extra deductions off your state income taxes.
Each state has different rules and incentives. Generally, incentives will depend on your financial situation. For more information, you can view this chart that compares LTC Insurance tax incentives in each state.
Federal and state tax laws can change quickly. You should always consult a qualified tax advisor to confirm current tax laws.
RELATED: Multiple States Considering Implementing Long-Term Care Tax
Use A Health Savings Account (HSA) To Pay For Long-Term Care Insurance Premiums
Another loosely related tax incentive is a health savings account (HSA). A health savings account is a tax-free savings account you can use to pay for health and care expenses.
Money put into HSAs is pre-tax, and any money spent on medical and health-related expenses, including LTC Insurance premiums, comes out tax-free.
Many people use their health savings accounts to pay for Long-Term Care Insurance premiums or long-term care costs. This makes HSAs an effective option to avoid taxes and make the most of your money.
However, there is one thing to keep in mind here. You cannot use both pre-tax HSA money and a tax deduction; you must choose one or the other. You can read our article on health savings accounts if you're interested in learning more.
A Recap on Long-Term Care Insurance Tax Deductions in 2023
Long-Term Care Insurance offers useful tax benefits. Individuals can deduct a portion of their premiums as medical expenses. Businesses can potentially deduct 100% of their premiums as a business expense.
These tax deductions can reduce your tax bill and help you save money on insurance premiums, making Long-Term Care Insurance more affordable.
Outside of federal taxes, some states offer extra tax benefits as well. There are also tax benefits for those who plan for long-term care or Long-Term Care Insurance with a health savings account.
If you found this article helpful, consider reading some of LTC News’s other resources. We have several articles like this one to help you learn and plan for long-term care and Long-Term Care Insurance.