Is long-term healthcare insurance tax deductible?
“To sum it up…”
- Long-term healthcare insurance is tax-deductible as a medical expense
- Premiums, costs, and expenses are deductible for self, spouse, and dependents
- Self-employed persons get the deduction directly
- The IRS limits the amount of the deduction based on age
- The deduction must be for qualified long-term insurance coverage
The deduction of health insurance payments has been established but it was modified by the Affordable Care Act. The ACA raised the threshold for medical expenses from 7.5 percent to 10 percent of annual income. The IRS later set rules for deductions and limited them to annual maximums.
Comparison shopping is a useful aid when selecting long-term care insurance. It is the best way to find a good financial fit with high-value insurance. Enter your zip code above to compare health insurance quotes for free!
What is long-term care?
Long-term care consists of daily functions that people need to have done. Getting to and from bed. toileting, fixing meals, cleaning, and dressing are examples of daily functions. When individuals can no longer perform or more, then they need long-term care.
What is long-term care insurance?
Long-term care insurance is protection designed around the needs of elderly people that can no longer care for themselves.
Long-term care policies reimburse the policyholder for the costs associated with obtaining needed services for daily functions.
How does long-term Insurance work?
Policies set the maximum amount they pay each day and their number of days per year that they will pay. The max amount multiplied by the number of days expresses the annual value of the policy.
No Guarantee of Acceptance
The best time to buy a long-term care policy is when relatively young and healthy. The deductions for the premiums may be small for those under forty, but it may be the time to get coverage with a high-degree of confidence in acceptance.
Older persons may have a difficult time getting the protection of a long-term care policy. They insurers can require medical underwriting and this provides a basis for rejecting persons in poor health or weakened conditions.
The IRS Sets Annual Limits
The deduction for long-term care depends on the IRS determination of the years maximum level. The IRS sets limits based upon age ranges. The amount rises with the attained age of the taxpayer. The below-listed items describe the maximum deductions for long-term care insurance for 2016 calendar year.
- Age 40 or less: The maximum deduction for 2016 is $390
- Age 40 through 50: The maximum deduction for 2016 is $730
- Age 50 to age 60: The maximum deduction for 2016 is $1,460
- Age 60 to 70: The maximum deduction for 2016 is $3,900
- Taxpayers older than 70 can deduct up to $4,870
Self-employed people can deduct the costs of long-term care insurance without the need to pass the threshold. They can deduct if under age 65 without qualifying for the 10 percent requirement.
If older than 65, they can get the deduction without reaching the seven and one-half percent threshold. They can deduct under the below-described conditions.
- Deduct the amount of the premium if there was a net profit.
- Deduct premiums paid for spouse, self, and dependents
- Medical expenses do not have to exceed the percentage threshold.
The Self-Employed Deduction
The self-employed have a wide deduction for health insurances of nearly every kind. They can deduct for a spouse, dependents as well as themselves. They can deduct for dental, vision, health, as well as long-term care insurance. They do mot have to meet the ten percent rule for medical expense deductions.
Qualified Long-term Insurance
long-term care insurance will not be deductible unless the policies meet the standards set by the IRS. Policies issued after January 1, 1997, must offer specific protections to the consumer. The consumer is free to accept or reject the required options.
Policies issued before that date will be accepted if approved by the insurance commissioner of the state of issuance. Qualified long-term care insurance must offer the blow-listed options to the consumer.
- Inflation protection – The benefits paid to policyholders have a purpose; they must cover the costs of needed services. The levels of prices and wages changes over time and the fair price of one decade would not suffice at a later time as the prices of goods and services rise.
Inflation is a particular problem because it often occurs rapidly and without an apparent cause. Inflation can erode the buying power that the policy protects. Qualified insurance must offer inflation protection.
- Non-forfeiture protection – This is protection that avoids a total loss in the event that the policyholder can no longer make payments. These policies offer reduced paid benefits and shortened benefit periods. The reduced benefit is a lower pay for the original term, and the shortened benefit is the full pay for a shorter term.
Forfeiture can make a poor outcome from years of investment. One could wind of with nearly nothing in return. The non-forfeiture protection guarantees some level of benefits. The items below offer a brief description.
- Reduced Paid-Up Benefit – Policyholders that buy a reduced paid-up benefit will get coverage if they stop paying premiums after a specified number of years. The policy will continue and pay a lower daily level of benefits. The payments will continue for the term 0f the contract.
- Shortened Benefit Period – Policyholders that purchase a shortened benefit period get the full daily amount agreed in the contract. in the event the policy lapses for non-payment of premiums, the policyholder gets a substantial benefit. They get the full amount for a shorter period. The payments run until the policy pays the entire nonforfeiture amount.
Long-term care insurance is not required for everyone. It appears that everyone could benefit from the protections it offers for old age security. Buying a policy requires some sense of potential needs. One should not buy more than needed but it is important to have enough.
It is important to apply early and not to wait until age or infirmity reduce the chances of getting coverage. Comparison shopping is an ideal way to get the best possible value in long-term care insurance.
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