Tax Advantages of Long Term Care Insurance

by Michele Postler, Monday, January 14, 2013

Everyone loves a tax break and if you didn’t know already, some situations allow long term care insurance premiums to become tax deductible. The future of long term care insurance is that it is inevitable, meaning it’s inevitable that you will need it at some point in your life. People are taking care of their health more and more and so they are living longer. But an average person at age 85 has a 50/50 chance of having dementia. When you are requiring long term care is the time that you thank yourself for putting away that money each month to purchase long term care insurance. But long term care insurance rates aren’t cheap so the government has introduced some tax saving advantages to purchasing this insurance.

 

  • Individual tax savings – you may not find the savings you are looking for when you are an employee, young and paying for long term care insurance but it will definitely come in handy when you are over 50 and possibly have more medical expenses to pay. Another wrench is that the government has imposed a new increase to the amount of medical expenses you can deduct from 7.5% to 10% in 2013. But if you are older and have many expenses the LTCI payment will add to the tax savings.
  • Self Employed – If you are self employed, the tax benefit to you increases exponentially when paying for long term care insurance. Instead of deducting a percentage you can deduct the entire amount directly off your income. A self employed individual can also deduct relevant premiums for their spouse and any dependents, which decreases your income even more. Another advantage is that you don’t have to be self employed full time to benefit from this deduction.
  • State Income Tax Credits – Some states offer not only tax deductions but also tax credits when paying for long term care insurance.

Tax Credits by State:

  • Minnesota – has offered a maximum $100 tax credit for individuals and $200 tax credit for couples filing taxes together. They stipulate that the lifetime insurance benefit limit be $100,000 or more
  • Colorado – offers a maximum tax credit of $150 for joint income tax filers with 25% of the premiums allowed as a credit
  • Maryland – the credit is dependent on age and can only be claimed once per person but the maximum credit is between $320 and $500
  • Montana – the credit rate varies by income level but can be a maximum of $5,000. This number also includes expenses for care of elderly family members.
  • New York – doesn’t have a maximum credit limit but allows only 20% of the premiums as a credit.
  • North Carolina – has income limitations but the maximum is $350 and allows 15% of the premium payments as a credit deduction on taxes.
  • Oregon – the tax credit is a maximum of $500
  • Virginia – doesn’t have a credit maximum but the tax credit only applies to the first twelve months of the premiums that are paid.
    There are plenty of tax advantages to buying long term care insurance, more if you own a company or are self employed. People are starting to realize that long term care is a reality for most and it needs to be funded while you are able to pay for it.