Most long-term care policies are tax-qualified, which means that
the premiums and out-of-pocket expenses for long-term care are
applied to meeting the 7.5% floor for medical expense deduction. In
other words, you can use the costs to meet the minimum requirement
for deducting your medical costs.
There are some limits, which are based on your age, for the total
amount of premiums paid that can be applied to the 7.5% floor. Your
tax advisor should be able to fill you in on the details.
Employers are able to deduct as a business expense the cost of
setting up a group long-term care insurance plan plus any
contributions they make toward paying their employees' premiums.
Employer contributions are excluded from the employees' taxable
income.
There are non-tax qualified long-term care plans available. The
individual policies offer more generous benefits and use less
restrictive triggers. However, the benefits from these policies may
be considered as taxable income.
Many states offer state tax incentives to purchase long-term care
plans. The incentives range from full to partial deductions of
long-term care premiums on state income taxes. Your state Department
of Insurance will tell you if your state offers long-term care tax
incentives.
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