Did you know owning a qualified long term care policy can benefit you in multiple ways? Not only does it help pay for your future care needs, the government rewards policy owners with a tax break.
Federal and State governments know they have a problem on their hands as the tidal wave of 70 million baby boomers are facing retirement. To reduce the strain on Medicaid, the government is encouraging individuals to plan for their future care by sweetening the deal with premium tax advantages.
Any premiums paid towards you or a dependent’s long term care insurance policy each year may be tax deductible when you have a qualified long term care insurance plan. Continue reading to learn how you can save yourself money with these important tax benefits.
What Is a Qualified Long Term Care Insurance Policy?
The majority of LTC policies sold today are tax-qualified. A qualified policy is triggered by needing long term care for at least two out of six activities of daily living or for a cognitive impairment.
Though most LTC policies on the market today are tax-qualified, confirm this when you’re working with your insurance broker. We recommend working with an LTC Specialist who specializes only in long term care planning. Specialists can help you find a tax-advantaged policy at a price you can afford.
Tax Advantages for Individuals
LTC insurance premiums are considered a medical expense. Individual taxpayers may receive tax advantages each year based on their age at the end of the tax year as defined by the Internal Revenue Code 213(d) limits.
Tax advantages may be available when premiums for inforce LTC coverage for you, your spouse, and dependents (i.e. parents) exceed 10% of your Adjusted Gross Income (AGI). For those 65 and older, the threshold will be 7.5% in 2016. Any LTC insurance premiums paid above the annual federal tax deductible limits may not be included as a medical expense.
Each year the maximum federal tax deductible limits change to consider the cost of inflation. This table shows the deductible limits for 2015 and 2016. We recommend that you speak with your accountant or tax advisor for specific information relating to long term care insurance tax advantages for you and your family.
Important to note: LTCI premiums are based on your age and health at the time of purchase. Buying LTC insurance while you’re young and healthy may lock you into lower rates and better coverage. Though you may not be eligible to deduct premiums now, these deductions may benefit you in the future if you experience declining health or an increase in medical expenses.
For more information on tax advantages for the 2015 tax year, please see our 2015 Tax Guide in our free resources section. Don’t delay. Learn more about tax-qualified long term care policies and how you can take advantage of these deductions by speaking with an LTC Specialist today.
LTC Consumer is an independent, free online service to help consumers understand what long term care insurance is, how it works, and how to evaluate coverage options. Our mission is to provide an educational, no-pressure resource for learning about long term care planning, with the opportunity to speak with specialists who can help them.