Tax Considerations for Long-Term Care Insurance

The Health Insurance Portability and Accountability Act of 1996 (Kennedy-Kassebaum) established tax-qualified Long-Term Care insurance plans and defined the rules regarding taxation of benefits and deductibility of premiums.

Taxation of benefits

Benefits received under a tax-qualified Long-Term Care plan are generally not taxable as income.

While federal tax issues are still unclear in certain areas, some states have been proactive in clearly defining what Long-Term Care benefits are taxable and what are not.

Deductibility of premiums

Individuals can include as itemized medical expenses, LTC insurance premiums paid in a calendar year subject to the age-based premium limitations below. Total itemized medical expenses that exceed 7.5 percent of Adjusted Gross Income (AGI) are deductible. The deductible portion of the LTC premium allowed, subject to the 7.5 percent AGI threshold, is referred to as the "eligible LTC premium."