When you have long-term care insurance, you may have questions beyond how much it costs and what type of care it covers.

And questions like - Is long-term care insurance tax deductible? come up more often than you might think.

is long term care insurance tax deductible

So, what is the limit for tax deductions on long-term care insurance? How can I find out if I can deduct my long-term care insurance from my taxes?

If you want to know what tax benefits and deductions you can get from long-term care insurance, today, we can help you find those answers.

Can I Deduct Long-Term Care Insurance Premiums?

After retirement, many people find that their medical expenses increase across the board.

That's why the IRS has implemented policies that allow you to deduct the costs over a certain threshold from your taxes.

These deductions don't apply to all long-term care insurance policies, though.

Your eligibility for tax deductions based on your policy depends on many factors, the most significant of which is the cost of your plan.

If you don't pay enough to reach the minimum limit for tax deduction standards, you can't deduct your policy costs.

Additionally, your age affects how much you can deduct, even if you are eligible, which we'll talk about more later.

Your deductions also vary based on your situation.

For example, the long-term care insurance deduction for self-employed individuals differs from the long-term care premiums tax deductible for S corps.

THE SIMPLY INSURANCE WAY

Long-term Care Insurance made easy.

Agents not required.

Get quotes and sign up online without talking to an agent. But, we are here if you need us. 

Unbiased, expert advice.

Get unbiased insurance education from licensed experts and also avoid dodgy sales calls.

Coverage in minutes.

You can get long-term care insurance coverage within minutes of getting your quotes and applying.

Self-Employed Tax Deductions

When you're self-employed, your taxes work differently than if you were an individual working for a company.

According to the American Association for Long-Term Care Insurance (AALTCI), a self-employed person can deduct 100 percent of their long-term care insurance expenses in 2020.

However, the tax-deductible limit still applies.

If the amount you pay exceeds the limit, you can't deduct more than that stated limit.

Additionally, if your spouse has a long-term care insurance policy and is eligible for a subsidized insurance plan—or one where their employer pays their premiums—you can't deduct their premiums.

There are other components, but these encompass some of the most significant factors. 

According to the American Association for Long-Term Care Insurance, the average long-term care insurance policy costs $2,466 per year for a couple at age 55.

The cost goes up as you get older. For example, if that same couple purchases a policy at age 60, their prices rise almost $1,000 to an annual average of $3,381.

That's because as you age and your health worsens, insurance companies are less likely to approve you for a policy.

INSURANCE WHERE YOU LIVE

Long-term care insurance by state.

Tax Deductions For Subchapter S Corporations

Subchapter S corporations, along with partnerships and LLCs, work a little differently than self-employment when it comes to tax deductions on long-term care insurance.

In these situations, if you own more than 2 percent of the S Corp as a shareholder, the S Corp pays your insurance premium. The same concept goes for LLCs and partnerships.

As with self-employed individuals, S Corp members can deduct up to 100 percent of their long-term insurance premiums.

This will depend on their Adjusted Gross Income (AGI) and the eligible premium limits set forth by the IRS in the given year.

What is a "Qualified" Policy?

When you purchase a long-term care insurance policy, you must find out whether it is a tax-qualified policy or a non-tax qualified plan.

This can mean the difference between deducting some or all your insurance premiums come tax season or being able to deduct nothing. 

long term care insurance taxes

With a tax-qualified policy, you must itemize deductions to deduct your policy premiums each year.

To find out if you have a qualified plan, add the amount you pay for your premium to any other tax-deductible medical costs you have. If the sum is greater than 7.5% of your AGI, you can deduct the amount that exceeds the IRS threshold for deductions.

Additionally, you should know whether other components of your policy are taxable, including policy benefits.

If they are deductible as income, that will affect your policy's qualifications. Unfortunately, how it changes what you can deduct aren't clearly defined.

Different qualifications apply to chronically ill patients, too. Qualified plans have specific requirements when it comes to providing care.

That means that if the policy covers unqualified services, that changes your eligibility to deduct premiums on your taxes.

Before you purchase a long-term care insurance policy, ask your insurance provider whether you are buying a tax-qualified or non-tax qualified policy.

This information will help you determine what kind of policy you should purchase.

It will also help you decide whether or not you should itemize your deductions when it comes to medical care each year.

THE SIMPLY INSURANCE WAY

Long-term Care Insurance made easy.

Agents not required.

Get quotes and sign up online without talking to an agent. But, we are here if you need us. 

Unbiased, expert advice.

Get unbiased insurance education from licensed experts and also avoid dodgy sales calls.

Coverage in minutes.

You can get long-term care insurance coverage within minutes of getting your quotes and applying.

2020 Tax Deductible Limits for Long-Term Care Insurance

Before you itemize your expenses, you should know the 2020 tax-deductible limits for long-term care insurance.

Knowing these limits will help you understand how much you can deduct from your medical expenses so that you can plan better for the year ahead.

The AALTCI has more information regarding tax-deductible limits for 2020, but before you look at the numbers, understand that other factors affect your limits as well.

For example, the younger you are, the lower your tax-deductible limit will be. 

Your deductions also depend on other medical expenses you've incurred over the year. 

Those expenses combine with your long-term care insurance expenses, raising your costs further above the IRS threshold for qualified policies.

These are the tax deduction limits for 2020 as they apply to individuals:

  • Under 40 Years: $430
  • Between 40 And 50 Years: $810
  • Between 50 And 60 Years: $1,630
  • Between 60 And 70 Years: $4,350
  • Over 70 Years: $5,430

These new numbers are all higher than they were in 2019. You can deduct anywhere from $10 to $160 more in 2020, depending on your age.

Taking Action

When you purchase long-term care insurance, you want to know how your premiums affect your tax deductions.

That means understanding whether you have a tax-qualified or non-tax qualified policy. It also requires you to know the yearly tax-deductible limit.

If you plan to deduct your long-term care insurance premiums from your taxes this season, make sure you itemize your expenses. 

If you have questions about determining your policy's eligibility or how you can qualify for tax deductions, leave us a comment. 


Sa El

About the author

Sa El is the Co-Founder of Simply Insurance and a licensed Insurance Agent with over 11 years of experience in the industry.  He specializes in Life & Health Insurance and is certified in Long Term Care Insurance in the state of Georgia. He is also an Official Member of the Forbes Finance Council, a licensed real estate agent in the state of Georgia (License #382602), an entrepreneur, insurance educator, and freelance writer.


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