The Internal Revenue Service recently announced that taxpayers can deduct from their 2021 income if they are buying long-term care insurance. It must be a qualified policy and the premiums will be tax deductible to the extent that they exceed 10% at the insured’s adjusted gross income in 2021. The same qualifications apply to unreimbursed medical expenses including Medicare premiums as well.
To be considered a qualified policy, the policy must be issued on or after January 1st of 1997. Other requirements include that the policy must offer the consumer inflation protection as well as nonforfeiture protection. The policy must simply offer these protections. The purchaser is not required to actually purchase those protections. Any policies purchased before January 1st of 1997 may be treated as qualified as long as it is approved by the Insurance Commissioner of Maryland.
The premiums are deductible for the taxpayer, his or her spouse and other dependents. The rules may vary slightly if you are self-employed. Self-employed individuals can take the amount of the premium as a deduction as long as they make a net profit. In the case of self-employment, your medical expenses do not have to exceed a certain percentage of your income.
The long-term care insurance premium tax deduction is not available with hybrid policies such as life insurance and annuity policies with a long-term care benefit.
Below is the chart published by the IRS showing the deductible amounts for long-term care insurance premiums for 2021:
Age at the end of 2021 2021 Limit-$450 2020 Limit
40 or less $ 450 $430
41-50 $850 $810
51-60 $1,690 $1630
61-70 $4520 $4350
70+ $5640 $5430
Tax-qualified long-term care insurance benefits are generally tax-free. However, some policies pay a cash amount or indemnity once you qualify for benefits. The tax-free maximum allowable amount for 2020 is $400 a day, or the actual cost of care, whichever is higher.
For more information on long-term care planning, contact the experienced Elder Law attorneys at Stouffer Legal in the Greater Baltimore area.
