Tax Initiatives

Tax Initiatives

Since January 1, 1997, individuals have been able to comprise out-of-pocket expenses for long term care and long term care insurance premiums with their additional itemized medical expenses on their yearly federal income tax returns. Long term care and additional medical expenses are deductible, to the degree that they go beyond the federal government's 7.5 percent doorstep of adjusted gross income. (Talk to your financial advisor to ensure that you are eligible for this deduction). The insurance benefits consumers get, for the most part, will not be taxable as income. Note: All long term care policies issued before that date were grandfathered.

The amount of LTC insurance premium that may be treated as an annual medical expense for federal income tax purposes is limited according to the following table:

Age Limitation

40 or less $200

41 to 50 $375

51 to 60 $750

61 to 70 $2,000

71 and over $2,500

Benefits paid under a long term care insurance policy will not be treated as income for federal tax purposes - except that, for policies that pay a fixed sum per day of disability, amounts in excess of $175 per day will be considered income. The $175 daily limit will rise with inflation in future years. A number of states have also recognized the importance of long term care insurance by providing their own tax incentives.

Employer Deductions:

Employers will have the option of deducting as a business expense the cost of establishing long term care insurance policies for employees, in addition to any contribution they make toward premiums.

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