Are Long-Term Care Premiums Tax Deductible?
Determine the tax deductibility of your long-term care insurance premiums. Understand the specific requirements, limits, and steps to claim.
Long-term care (LTC) insurance covers long-term services and support costs, which are not typically covered by health insurance or Medicare. These services include assistance with daily activities like bathing, dressing, and eating, whether provided at home, in an assisted living facility, or a nursing home. Given the substantial expense, understanding potential tax benefits, like premium deductibility, is important. This article explores the conditions for tax deductibility of long-term care insurance premiums.
Understanding Qualified Long-Term Care Insurance Contracts
For long-term care insurance premiums to be deductible, the policy must meet the Internal Revenue Service (IRS) definition of a “qualified” long-term care insurance contract. Only premiums paid for such contracts are considered medical expenses for tax purposes. A policy is qualified if it meets specific criteria outlined in the Internal Revenue Code.
A qualified long-term care insurance contract must provide protection solely for qualified long-term care services. It cannot offer a cash surrender value or money that can be paid, assigned, or pledged as collateral. The contract must also be guaranteed renewable, meaning the insurer cannot cancel the policy as long as premiums are paid, even if the insured’s health changes.
All refunds of premiums and policyholder dividends or similar amounts must be applied as a reduction in future premiums or to increase future benefits. The policy must also stipulate that benefits are triggered only when a chronically ill individual requires care, defined as an inability to perform at least two activities of daily living without substantial assistance for at least 90 days, or severe cognitive impairment requiring substantial supervision.
Who Can Deduct Premiums and How Much
Even if a long-term care insurance contract is qualified, deductibility depends on factors, primarily the taxpayer’s adjusted gross income (AGI) and the insured individual’s age. For most taxpayers, qualified long-term care premiums are treated as medical expenses. These expenses are only deductible to the extent that total itemized medical expenses exceed 7.5% of the taxpayer’s AGI for the tax year. For example, if your AGI is $100,000, you can only deduct the portion of medical expenses, including qualified LTC premiums, that exceeds $7,500.
Long-term care premiums included as medical expenses are subject to annual age-based limits, adjusted for inflation. For the 2024 tax year, these limits are: $470 for individuals aged 40 or younger; $880 for those aged 41 to 50; $1,760 for ages 51 to 60; $4,710 for ages 61 to 70; and $5,880 for individuals aged 71 and older. These limits apply per person; for married couples, each spouse’s premiums are subject to their individual age-based limit. If the actual premium paid exceeds the age-based limit, only the limit amount can be considered for the deduction.
Self-employed individuals have more favorable rules for deducting qualified long-term care premiums. They can deduct the full amount of qualified long-term care premiums, up to the age-based limits, as an adjustment to income. This deduction is taken “above the line” on Schedule 1 of Form 1040, meaning it reduces their AGI and is not subject to the 7.5% AGI threshold that applies to itemized medical expenses. To qualify, the self-employed individual must have a net profit from their business and not be eligible to participate in an employer-sponsored health plan. Premiums paid for a spouse’s qualified LTC policy can also be included in this deduction.
Claiming the Deduction: Required Documentation and Reporting
Claiming the long-term care premium deduction involves specific tax reporting and record-keeping. For most taxpayers who itemize, deductible qualified long-term care premiums are combined with other eligible medical expenses and reported on Schedule A (Form 1040), Itemized Deductions. This is where the 7.5% AGI threshold is applied to determine the final deductible amount.
Self-employed individuals claim their deduction on Schedule 1 (Form 1040) as an adjustment to income. This deduction is reported on Line 17 of Schedule 1, reducing their gross income before AGI is calculated. They may also need to complete Form 7206, Self-Employed Health Insurance Deduction, to calculate their deductible amount, especially if they have multiple income sources.
Maintaining records is important in case of an IRS inquiry or audit. Taxpayers should keep statements from their insurance company showing the premiums paid for qualified long-term care coverage, along with proof of payment. The policy contract, demonstrating it meets the IRS definition of a “qualified” contract, should also be readily available. For complex financial situations or to ensure accurate reporting of these deductions, consulting a tax professional can provide tailored guidance.