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Tax Benefits
With the recent passage of the Health Insurance Portability and Accountability Act, (HIPAA), the premium costs of Long Term Care Plans were given a tax-favored treatment. To qualify for favorable tax treatment, Long Term Care policies must provide for necessary diagnostic, preventative, therapeutic, curing, treating, mitigating and rehabilitative services and maintenance of personal care services which:- Are required by chronically ill individuals, and
- Are provided by a licensed Health Care Practitioner
- Chronically ill means the individual has been certified by a Licensed Health Care Practitioner as:
- Being unable to perform, without substantial assistance from another individual, at least 2 of the foll0owing Activities of Daily Living (ADL) - Bathing, dressing, eating, toileting, transferring and continence, or
- Requiring substantial supervision to protect the individual from threats to health and safety due to severe cognitive impairment.
- The ADL must be expected to last for at least 90 days, as certified by a Licensed Health Care Practitioner.
Almost any current Long Term Care Plan will meet the tax-qualified criteria that have been established by the IRS.
Individual Premium Expenses
HIPAA amended the federal tax code so that individuals can include the premiums for long-term care plans and non-reimbursed expenses for long-term care. These can be treated as medical expenses. Individuals can deduct their medical expenses to the extent that these expenses exceed 7.5% of the individual's adjusted gross income. The amount of eligible LTC premiums is based on the individual's age and is adjusted annually based on the increase in the Medical care component of the Consumer Price Index.
| Age | 2001 Tax Year | 2002 Tax Year |
| 40 | $230 | $240 |
| 41-50 | $430 | $450 |
| 51-60 | $860 | $900 |
| 61-70 | $2,290 | $2,390 |
| 71+ | $2,860 | $2,990 |
As a result of the HIPAA law, you can now count long-term care premiums as part of the total eligible medical expenses that can have tax-favored treatment. Therefore, keep this important fact in mind when calculating the cost of long-term care insurance. Also, keep in mind that benefits received from long-term care insurance are tax free, up to certain limits.
and Advice Since 1986
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