Is Long Term Care Insurance Tax Deductible? 2023-Update

Is Long Term Care Insurance Tax Deductible for tax year 2022 and 2023? 2023 Tax Year Updated!

Long Term Care Insurance policies sold are either IRS tax-qualified or non-tax-qualified; however, most policies sold today are tax-qualified.  Tax-qualified means that the insurance contracts conform to the 1996 Health Insurance Portability and Accountability Act (HIPAA) as well as IRS rules.  The below video will go over if Long Term Care Insurance tax deductible.

There are several possible ways you may be able to deduct your Long Term Care Insurance premiums. One simple way is if you own a HSA or Health Savings Account.

Here are 2021 and 2022 Federal Long Term Care Insurance Tax Deductible Limits
Source: https://www.irs.gov/pub/irs-drop/RP-12-41.pdf 

Self-Employed and Small Business Long Term Care Insurance Tax Deductible

The Trump Tax Reform Bill of 2018 made Long Term Care Insurance premiums even more deductible. As a business owner, you may be able to deduct 100% of your medical, dental, and qualified Long Term Care Insurance for yourself, your spouse, and your dependents if you fit into one of the following:

• You are a self-employed individual with a net profit reported on Schedule C, C-EZ, or F.
• You are a partner with net earnings from self-employment reported on Schedule K-1 (Form 1065), box 14, code A.
• You are a shareholder owning more than 2% of the outstanding stock of an S corporation with wages from the corporation reported on Form W-2.

The insurance plan must be established under your business. You may be allowed this deduction whether you paid the premiums yourself, or your partnership or S corporation paid them, and if you included the premium amounts in your gross income. Take the deduction on line 29 of Form 1040.

Here’s a 2020 Motley Fool article that also provides some valuable tax prep tips on the deductibility of the long term care insurance

Tax Qualified Long Term Care Insurance

Long Term Care Insurance policies issued before January 1, 1997, automatically qualify under the new HIPAA rule.

They are grandfathered and treated as qualified plans as long as they have been approved by the insurance commissioner of the state in which they are sold.

Policies issued on or after January 1, 1997, must meet federal standards in order to be Tax Qualified.  To be a qualified Long Term Care plan, the plan must adhere to consumer-friendly rules established by the National Association of Insurance Commissioners (NAIC).

Definitions of Services and Benefit

• The policy pays benefits only for qualified LTC services. Qualified services are defined as necessary diagnostic, preventative, therapeutic, treating, mitigating and rehabilitative services, and personal care and maintenance services that are required by a “chronically ill” individual.
• The services must be provided in line with the plan of care prescribed by a licensed health-care practitioner (the insured’s doctor).
• The policy must offer buyers the choice of inflation protection and non-forfeiture protection; however, the buyer can choose not to add on these features to their Long Term Care Insurance policy.

How You Qualify

• The policy must provide that activities of daily living and cognitive impairment are both triggers to access benefits.  The Long Term Care Insurance policy cannot stipulate a medical necessity trigger.
• Under an Activities of Daily Living (ADLs) benefit trigger, the Long Term Care Insurance policy must pay benefits when the insured is unable to perform at least two of six specified ADLs when certified by a licensed health practitioner and that the need for help with the ADLs is expected to continue for at least 90 days.  The HIPAA rule standardized the ADLs that are to be specified in a qualified policy: eating, bathing, dressing, toileting, transferring, and maintaining continence.
• Under a cognitive impairment trigger, coverage begins when the individual has been certified as requiring substantial supervision to protect him or her from threats to health and safety.

Other Consumer Protections

• The policy must be issued as guaranteed renewable or non-cancel-able.
• The policy must include a third-party notification or other measure for lapse protection.

Long Term Care Insurance Tax Deductible, the details:

The IRS has clarified the tax treatment of Long Term Care Insurance (LTCI), and, for policy owners such as small business owners who itemize, it allows a tax deduction for premiums up to a certain limit based on one’s age.

Out-of-pocket expenses, premiums paid for qualified LTCI policies and out-of-pocket expenses for Long Term Care are tax deductible as medical expenses to the extent that the taxpayer’s total qualified medical expenses exceed 10 percent of his or her annual adjusted gross income (AGI).  Note this was 7.5% prior to Obamacare.

2022 and 2023 Long Term Care Insurance Age and Premium Limitations

The deductibility of qualified LTCI premiums is limited by the age of the taxpayer (as of the end of the year), and these limits are adjusted by the IRS annually for inflation.

How do you exclude benefits received?

For information on excluding benefits you receive from a Long Term Care Insurance contract from gross income, see Publication 525.