Tax Deductions for Long-Term Care Premiums

The government does not want to have to pay your Long-Term Care expenses when you get old. If you're thinking about Long-Term Care insurance, then make sure you know about the possible tax deductions available to you. This blog breaks down the numbers you need to be aware of.

Few people realize the true scope of tax incentives the government provides to its citizens. There are various reasons for this, but in the case of long-term care, the answer is simple. The government would prefer that you are able to take care of yourself should you need long-term care. A much costlier scenario for the government would be if they had to take care of you. Let’s look at the tax deductions available for long-term care. Note that the amount of deduction available is dependent on your current age.

According to the IRS, the current deductions available are as follows:

Attained Age Before Close of Taxable Year… 2022

40 or less $450

More than 40 but not more than 50 $850

More than 50 but not more than 60 $1,690

More than 60 but not more than 70 $4,510

More than 70 $5,640

However, there is a caveat. Deductions are only allowed if the premiums exceed 7.5% of Adjusted Gross Income (AGI). If you do incur other medical expenses for a given year, those do get added to your premium payments which makes it easier to exceed the 7.5% threshold.

Here is an example:

Barry is 62 years old and makes $50,000 a year. He currently pays long-term care premiums of $250 a month for a total of $3,000 a year. To be able to deduct his premiums, Barry needs to have expenses that exceed 7.5% of the $50,000 he makes each year. Since 7.5% of $50,000 is $3,750, assuming Barry had no other medical expenses for the year, he cannot deduct any of his premiums.

Now if Barry also had to pay for a surgery that cost him $7,000 that year, then that would bring Barry’s medical expenses up to $10,000 for the year. With $10,000 in medical expenses and the 7.5% threshold at $3,750, Barry would be able to deduct the full $4,510 as determined by his age.

Here is the math. $10,000 - $3,750 = $6,250. Those $6,250 are expenses above the AGI. And since the maximum deduction for Barry (62) is $4,510, then he caps out at the $4,510 deduction for the scenario above.

Remember, approximately 70% of all people will need long-term care at some point. Above is another reason why long-term care insurance could be beneficial to you. In summary, understanding tax deductions for long-term care premiums is important as it can help you to save money. Long-term care insurance is also an important consideration for individuals to protect themselves against potentially high long-term care costs.

Contact us today to schedule a meeting regarding your long-term care needs!

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