IRS Issues Long-Term Care Premium Deductibility Limits for 2013
The Internal Revenue Service (IRS) is increasing the amount taxpayers can deduct from their 2013 taxes as a result of buying long-term care insurance (LTCI). This is great news for those who are presently paying long term care insurance premiums or who are considering making a LTCI purchase. LTCI is the best type of advanced Elder Law and Medicaid planning available if you can afford it.
Premiums for “qualified” long-term care insurance policies (see explanation below) are tax deductible to the extent that they, along with other unreimbursed medical expenses (including Medicare premiums), exceed 7.5 percent of the insured’s adjusted gross income. This threshold is rising to 10 percent on January 1, 2013, although it will remain at 7.5 percent for taxpayers 65 and older through 2016.
These premiums — what the policyholder pays the insurance company to keep the policy in force — are deductible for the taxpayer, his or her spouse and other dependents. (If you are self-employed, the tax-deductibility rules are a little different: You can take the amount of the premium as a deduction as long as you made a net profit; your medical expenses do not have to exceed a certain percentage of your income.)
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 2013. Any premium amounts for the year above these limits are not considered to be a medical expense.
Age at close of the tax year Maximum deduction for year
40 or less $360
More than 40 but not more than 50 $680
More than 50 but not more than 60 $1,360
More than 60 but not more than 70 $3,640
More than 70 $4,550
Another change announced by the IRS involves benefits from per diem or indemnity policies, which pay a predetermined amount each day. These benefits are not included in income except amounts that exceed the beneficiary’s total qualified long-term care expenses or $320 per day (for 2013), whichever is greater. (The 2012 limit was $310.)
What Is a “Qualified” Policy?
To be “qualified,” policies issued on or after January 1, 1997, must adhere to certain requirements, among them that the policy must offer the consumer the options of “inflation” and “nonforfeiture” protection, although the consumer can choose not to purchase these features. Policies purchased before January 1, 1997, will be grandfathered and treated as “qualified” as long as they have been approved by the insurance commissioner of the state in which they are sold. For more on the “qualified” definition, click here.
We have talked about Long Term Care Insurance and it’s merits on a number of occasions. Take a look at this past article entitled First Line of Defense: Long Term Care Insurance. If you have questions about long term care insurance options, please give Douglas L. Kaune a call at 610 933 8069. If you are past the point at which long term care insurance is feasible, please schedule a meeting to discuss other options. Unruh, Turner, Burke & Frees, P.C. has three convenient office locations in Phoenixville, West Chester and Malvern Pennsylvania.
