Long-term care is often a concern for many Americans, especially as we get older. In fact, the CDC estimates that one in three people aged 65 and older will require some type of long-term care services before they pass away. With costs averaging from $30K to $100K per year, it’s important to prepare yourself financially for this type of expense by purchasing long-term care insurance.
To know whether your long-term care insurance premiums are deductible, you first need to know whether your policy is tax-qualified. The IRS has strict standards for what constitutes a tax-qualified long-term health care insurance plan. To be considered a tax-qualified policy:
- The policy must be purchased by you; it cannot be purchased by another family member (for example, your child) on behalf of another person (yourself).
- Coverage must be provided through an insurance contract that provides benefits for qualified long-term care services and meets other requirements.
- You must pay all the premium expenses or reimbursements for premiums paid by others; you cannot receive any reimbursements from sources other than yourself or the plan itself in order to reduce or eliminate out-of-pocket costs such as deductibles, copayments and coinsurance amounts under the contract.
Policies that are not tax-qualified may still be eligible for a tax deduction.
The majority of long-term care insurance policies are tax-qualified, as they tend to have higher premiums than their non-tax qualifying counterparts. As a result, the majority of consumers who purchase these types of policies will be eligible for a tax deduction. However, there is no requirement that your policy be tax deductible in order for it to qualify for this benefit. Some policies may not qualify if they do not meet certain standards set by the Internal Revenue Service (IRS). In order for your long-term care insurance policy to qualify as tax-deductible and receive this benefit from Uncle Sam, it must first meet several requirements:
- You must have paid at least one premium payment during the year prior and during that same period you also had earned income through wages or self-employment.
- Your total annual benefits paid out must exceed 10% of your adjusted gross income (AGI).
It’s important to carefully review your policy and consult a tax professional before making any decisions about deductibility.
Tax professionals can help you consider the tax implications of long-term care insurance and other financial decisions. It’s important to carefully review your policy and consult a tax professional before making any decisions about deductibility.
It’s essential to consider the tax implications when choosing long-term care insurance policies.
You can deduct the premiums you pay for long-term care insurance and health insurance. You can also deduct the premiums you pay for life insurance, as well as disability coverage if it’s provided through your employer. However, it’s important to note that if you buy a separate policy on your own, those premiums are not tax deductible since they are considered voluntary expenditures rather than required coverage payments.
The bottom line? While it is possible for you to deduct some of your long-term care insurance premiums, you should consult with a tax or financing professional first.
Care Financial is available to assist you in learning more about the choices you and your loved ones have regarding long-term care insurance and if it is tax deductible. Call us at (251) 633-7122 today to get started.