How does long-term care insurance affect my taxes?
If you’re already covered by long-term care (LTC) insurance, you may be eligible to deduct some or even all of your LTC premiums. Or, if you’re receiving payments from a LTC insurance plan, you could exclude from your taxable income any payments made to you.
How do I deduct premiums for LTC insurance?
You may deduct LTC insurance premiums as a medical expense. As with all deductible medical expenses, you’ll need to meet the percentage of AGI floor requirement first. See Deducting Medical Expenses.
You can deduct premiums up to a certain limit based on your age. Here are the 2020 age requirements and allowed deductions for each person:
- Age 40 or under: $430
- Age 41 to 50: $810
- Age 51 to 60: $1,630
- Age 61 to 70: $4,350
- Age 71 and over: $5,430
But: If you pay your premiums with money from an HSA, you cannot deduct the premiums. That’s because HSA contributions are already tax-advantaged.
Do payments from a LTC plan count as taxable income?
Payments from a LTC insurance plan are considered taxable income, but you may be able to exclude that income from your return.
But: If your employer makes any contributions toward your LTC premiums, the contributions must be reported as income on your return.
To exclude payments from your taxable income, your plan must meet a few requirements:
- You, your spouse, or dependent receiving care must be considered chronically ill by a licensed health care practitioner.
- Your plan must only provide coverage for long-term care and must be renewable.
- Your plan must not provide cash or have a surrender value or money that is pledged, assigned, or borrowed.
Check with your HR department or LTC provider to make sure your plan meets these requirements.
How much can I exclude if I’m eligible?
Generally, payments for actual paid expenses can be fully excluded. However, if payments are made regardless of expenses paid, then there’s a limit. If you’re receiving payments on a periodic or per diem basis, the limit is $380 for each day for the 2020 tax year. If you receive more than $380 for each day of long-term care, you may be eligible to deduct the excess. You can deduct any excess over $380 as a medical expense if you meet the AGI floor requirement for medical deductions.
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