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Premiums for qualified Long Term Care Insurance policies are deductible like other medical expenses once a threshold is satisfied, except there is a cap which depends on your age. Premiums for policies which are not qualified are not deductible.

Whether payments received under a Long Term Care Insurance policy are taxed, and, if so, to what extent, also depends on whether the policy is qualified or not.

For information see:

Deductibility Of Long Term Care Insurance Premiums

Qualified Long Term Care Insurance Policies

Premiums for "Qualified" Long Term Care Insurance Policies are treated as if they are an unreimbursed medical expense just like other uncompensated medical expenses, except there is a cap.

The amount of the premiums is deductible to the extent that they, along with other unreimbursed medical expenses (including "Medigap" insurance premiums) exceed 10% of the insured's adjusted gross income. (In the years 2013–2016, if either the taxpayer or the taxpayer’s spouse has turned 65 before the close of the tax year, the threshold is 7.5% of AGI. In 2017 the 10% threshold will apply to all taxpayers.)

However, there is a limit on how large a premium can be deducted, depending on the age of the taxpayer at the end of the year. Following are the deductibility limits for the tax year 2012. Any premium payments above the limits are not deductible as medical expense.

Attained age before the close of the taxable year: Maximum Deduction

  • Age 40 or less $350
  • Age 41 - 50 $660
  • Age 51 - 60 $1,310
  • Age 61 - 70 $3,500
  • Age 71 and over $4,370

Non-Qualified Long Term Care Insurance Policies

If you have a non-tax qualified Long Term Care Insurance policy, you may or may not be able to deduct any part of your annual premiums. This area has not been clarified.

Payments Received Under A Long Term Care Insurance Policy

The tax status of payments received under Long Term Care Insurance Policy depends on whether the policy is "qualified" or not.

"Qualified" Long Term Insurance Policy

Payments received under a "Qualified" long term care insurance policy are generally treated the same as payments under a health insurance policy: amounts the insurance company pays are generally excludable from income.

Benefits that you receive in excess of the costs of long term care services may be taxable.

Policyholder dividends or premium refunds are included in taxable income.

For payments made on a daily (per diem) or other periodic basis, used to pay for long term care expenses, there is a limit on the exclusion. The limit applies to the total of these payments and any accelerated death benefits made on a per diem or other period basis under a life insurance contract because the insured is chronically ill. (To learn more, see: Life Insurance: How to Apply for a Living Benefit.)

To determine the limit, subtract any reimbursement received through insurance or otherwise for the cost of qualified long term care services during the tax period from the larger of the following amounts:

  • The cost of "Qualified" long term care services during the period.
  • The dollar amount for the period. During 2008, the amount is $270 per day.

"Non-Tax-Qualified" Long Term Insurance Policy

Benefits that you receive may or may not count as income. Consult with your tax advisor. (If you get an opinion in writing from an advisor or the IRS, please share it with other people in your position by clicking here.)

"Qualified" Long Term Care Insurance Contract Defined

For a long term care insurance policy to be considered a "Qualified" Long Term Care Insurance Contract for IRS purposes, all of the following must be present:

  • The contract must only provide coverage for qualified long term care services. For IRS purposes, long term care services are necessary diagnostic, preventive, therapeutic, curing, treating, mitigating, rehabilitative services and maintenance and personal care services, which are required by a chronically ill individual and provided pursuant to a plan of care prescribed by a licensed health care practitioner.
  • A "chronically ill individual" for these purposes is a person who has been certified by a licensed health care practitioner (such as a doctor) within the previous 12 months as one of the following:
    • An individual who, for at least 90 days, is expected to be (or is) unable to perform at least two so-called "Activities of Daily Living" without substantial assistance due to loss of functional capacity. Activities of daily living are eating, toileting, transferring, bathing, dressing, and continence.
    • If the condition which causes the need for care is mental (cognitive), the individual must require substantial supervision to be protected from threats to health and safety due to severe cognitive impairment.

Reviewed by:
David Flecker, CLU, ChFC
Executive Vice President
DeWitt Stern Group, Inc.
New York, NY