Long-term care insurance offers several tax advantages

Long-term care insurance offers several tax advantages that can make it a financially attractive option for retirement planning. Here's how these tax benefits typically work:

Premium Deductibility

Tax-qualified long-term care insurance premiums can be deducted as medical expenses on your federal income tax return, subject to certain limitations:

- You must itemize deductions on Schedule A (Form 1040).

- The deduction is limited to the amount of medical expenses that exceed 7.5% of your adjusted gross income (AGI).

- There are age-based caps on the deductible amount[1][6].

For the 2023 tax year, the deductible limits based on age are:

| Age at end of tax year | Deductible limit |

|------------------------|------------------|

| 40 or younger | $480 |

| 41 to 50 | $890 |

| 51 to 60 | $1,790 |

| 61 to 70 | $4,770 |

| 71 and older | $5,960 |

Tax-Free Benefits

Benefits received from a qualified long-term care insurance policy are generally tax-free, with some conditions:

- Benefits are tax-free if they don't exceed a daily cap set by the IRS ($410 for 2024)[1].

- For indemnity policies, payouts remain tax-free as long as they stay within the daily cap, regardless of actual costs incurred[1].

Business Tax Benefits

Businesses offering long-term care insurance to employees can enjoy additional tax advantages:

- Premiums paid for employees are typically fully deductible as a business expense[1].

- For C-corporations, premiums for employees (including owners) are fully deductible without limitations[1].

- Benefits received by employees are generally tax-free, subject to IRS daily limits[1].

State Tax Credits

Some states offer additional tax incentives for long-term care insurance:

- New York State, for example, provides a tax credit of 20% of long-term care insurance premiums[3].

- The credit is capped at $1,500 and applies to tax returns with adjusted gross income below $250,000[3].

Health Savings Account (HSA) Payments

Long-term care insurance premiums can be paid from a Health Savings Account (HSA) up to the age-based limits mentioned earlier, providing an additional tax advantage[8].

Considerations

- Only tax-qualified long-term care insurance policies are eligible for these tax benefits[5][7].

- The tax treatment may vary depending on whether the policy is individually purchased or provided by an employer[9].

- If you receive long-term care insurance benefits, they will be reported on Form 1099-LTC[9].

It's important to consult with a tax professional or financial advisor to understand how these tax advantages apply to your specific situation, as tax laws can change and individual circumstances vary.

Citations:

[1] https://smartasset.com/insurance/tax-benefits-of-long-term-care-insurance

[2] https://www.aaltci.org/news/long-term-care-insurance-association-news/2025-tax-deductible-limits-long-term-care-insurance

[3] https://www.dfs.ny.gov/consumers/health_insurance/long_term_care_insurance/tax_savings_policies

[4] https://www.kiplinger.com/article/retirement/t036-c005-s004-deduct-expenses-for-long-term-care-on-your-tax-return.html

[5] https://www.websterbank.com/resources/webster-investments/article/5-tax-benefits-of-long-term-care-insurance/

[6] https://www.cbsnews.com/news/what-are-the-2023-long-term-care-insurance-tax-deduction-limits/

[7] https://www.wsj.com/ad/article/longtermcare-faq

[8] https://www.aaltci.org/long-term-care-insurance/learning-center/tax-for-business.php

[9] https://bradyware.com/long-term-care-insurance-taxes-faq/

[10] https://www.1040.com/tax-guide/health-and-life-insurance/ltc-insurance-and-your-taxes/