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Question: Are long-term care benefits tax deductible?
Answer: Congress passed HIPPA as an incentive for people to take financial responsibility for long-term care. It generally provides for deductibility of qualified long-term care expenses, and excludes qualified long-term care benefits from taxable income. Higher deduction limits for LTC premiums are geared to help seniors make payments. Let’s see what this means.
You can add long-term care expenses, paid for qualified long-term care services and premiums for qualified long-term care insurance products, to your medical expenses deduction on Schedule A of your IRS form 1040.
Qualified long-term care services include necessary diagnostic, preventive, therapeutic, curing, treating, mitigating, rehabilitative services, and maintenance and personal care services required by a chronically ill individual and provided through a plan of care prescribed by a licensed health practitioner. That is an IRS mouthful.
Someone is chronically ill (i.e. needing long-term care) when within the last 12 months, a licensed health practitioner has certified him or her as unable to perform at least two of the activities of daily living – dressing, eating, toileting, transferring, bathing and continence without help for at least 90 days.
Qualified long-term care insurance contracts are those that provide only coverage of long-term care services. They must be guaranteed renewable and must not provide for a cash surrender value that can be paid, assigned, pledged or borrowed. And lastly, it must not pay for expenses that would be reimbursed under Medicare, except as a secondary payer.
The amounts of LTC premiums you can include in medical expenses are limited though. However, they increase substantially with age. See the table below for includible limits on LTC premiums.
LTC benefits generally are excludable from taxable income as long as they are used for qualified long-term care services (e.g. nursing home, home care, and personal care and maintenance services). Note that your medical deduction is subject to an overall limit of 7.5 percent of your adjusted gross income.
Limits of long-term care premiums includible in medical expense
AGE 2012 2011 2010
40 and younger
$350 $340 $330
41 to 50 660 640 620
51 to 60 1,310 1,270 1,230
61 to 70 3,500 3,390 3,290
71 and older
4,370 4,240 4,110
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