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The IRS has just released its annual inflation adjustments for tax year 2020. This includes the amount of LTC insurance premiums which are considered deductible health insurance premiums (the "Eligible Premium") and the minimum tax-free benefit amount for "cash benefit" indemnity plan payments - what the IRS calls "per diem" plans. FOR CLAIMS IN 2020 with a "cash benefit" or indemnity (per diem) policy the minimum tax-free benefit increases to $380 per day ($11,558/month). (This is a $10/day increase from 2019 which was $370/day.)
FOR PREMIUMS PAID IN 2020 the amount of tax-qualified premiums paid based on your age at the end of the tax year (on 12/31/2020) are considered a deductible medical expense up to the following age-based, "Eligible Premium" limits:
NOTE that most taxpayers will not be able to realize any deduction as you must first be able to itemize deductions on Schedule A, have total un-reimbursed medical expenses including the LTC Eligible Premium that exceed 10% of your Adjusted Gross Income (AGI), and only the amount above the 10% threshold is deductible. HOWEVER, if you have funds in a Health Savings Account (HSA) - or an employer-funded Health Reimbursement Account (HRA) - you CAN use those tax-free dollars to pay tax-qualified LTC insurance premiums up to the age-based, Eligible Premium amount shown above. BUSINESS OWNERS (and spouses) get to take the age-based, Eligible Premium deduction "above-the-line" on page one of Form 1040 as part of the "Self Employed Health Insurance Deduction" (Line 29). This applies to owners of business incorporated or taxes as: Sole Proprietorships, Partnerships, or S-Corporations. (Shareholder/Employees of a "regular" C-Corporation can have the entire premium deducted - without limit - if paid as an employee benefit by the corporation.) CLICK HERE TO LEARN MORE ABOUT BUSINESS DEDUCTIONS FOR LTCI. * The tax information presented here is for general information only and should not be used nor relied upon as specific tax advice. Taxpayers should consult with their CPA or qualified tax professional for advice regarding their own tax situation and the tax status of LTC premiums and benefits.
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There is still time to buy LTC insurance before the end of 2014 and capture a tax deduction for this year. As long as you sign an application and pay your first premium before the end of the year, you can claim a health insurance deduction for tax-qualified LTC insurance premiums. Business owners - even self-employed business owners - get the best deal. C-corporation Shareholders (owners) of a "regular", C-corporation (or a Professional Corporation (PC) taxed as a C-corp) who are also W-2 employees can have their business pay and deduct the full premium - without limit - for tax-qualified LTC insurance with no impact to their individual income. And benefits at time of claim remain tax-free. Spouses can be covered too, and with care, the plan can discriminate in favor of key employees. Self-Employed This includes sole-proprietors, partners, >2% shareholders of an S-corporation, and Limited Liability Companies (LLCs) taxed as any of these "pass-through" entities. Any of these self-employed business owners can have their business pay the full premium, but they must recognize the premium payment as income (a draw, guaranteed payment on K-1, or added to W-2 depending on how the entity is taxed). If the policy is tax-qualified, premiums up to the Eligible amount is deductible "above-the-line" on page one of Form 1040 as part of the "Self-Employed Health Insurance Deduction". Again, spousal premiums can be deducted the same way, and the plan can discriminate in favor of key employees. The individual, age-based, "Eligible", deductible premium limits for 2014 are:
Eligible premium amounts index upward for inflation every year. See the previous TakeCare! blog post for 2015 numbers. Not every taxpayer will qualify, individuals - who are not business owners - have to itemize, and your payments up to the Eligible LTC insurance premium (table above) are added to your unreimbursed medical expenses on Schedule A, the total must exceed 10% (7.5% if you're 65+) of your Adjusted Gross Income (AGI) realize any deduction. However, you can use money from your Health Savings Account (HSA) to pay tax-qualified premiums up to the Eligible limit tax-free. Note that premiums paid for linked-benefit policies (annuities or life insurance combined with a LTC benefit) generally do NOT qualify for a premium deduction. This post is is for general information only. It is not meant as legal or tax advice and should not be used as guidance in any specific situation. Please consult with a qualified attorney and/or tax advisor.
Long-term care insurance policyholders who qualify will be able to deduct more of their premiums in 2015. The IRS has increased by about two-percent the amount of Tax-Qualified LTC insurance premiums considered an Eligible Medical Expense. The age-based, "Eligible", deductible premium limits for tax years 2014 and 2015 are:
Individual taxpayers must itemize deductions on Schedule A in order to deduct any LTC insurance premiums. Only the lesser of the age-based, Eligible premium or the actual premium is included as a deductible medical expense. And then all medical expenses must exceed 10% (7.5% if age 65+) of Adjusted Gross Income to get any actual deduction. Individual taxpayers with a Health Savings Account can withdraw money from their HSA tax-free to pay LTC insurance premiums, but only up to the age-based, Eligible premium limits. Self-employed business owners get an "above-the-line" deduction, they do NOT have to itemize. LTC insurance premiums up to the Eligible limits - for the owner and a spouse - are included as part of the "Self Employed Health Insurance Deduction". (Form 1040, page 1, line 29 (2013)) Tax-Free Benefit Payments The per-diem (or "indemnity") tax-free benefit payment limitation for 2015 remains at the greater of $330 per day, or actual expenses paid (no change from 2014). Benefits paid as a "reimbursement" of actual expenses are received tax-free. Source: IRS Revenue Procedure 2013-35 (2014 limits) and 2014-61 (2015 limits) This information is a summary only and should not be considered as tax advice.
Not to be used in a specific tax situation. Please consult with a qualified tax advisor before implementing any tax strategy. |
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Comfort Long Term Care is an independent insurance brokerage agency specializing exclusively in LTC insurance. We are based in the Raleigh, Durham, Chapel Hill, North Carolina Triangle region, but we serve clients throughout NC and across the country. We also have an office in St. Louis, Missouri. Click here to learn more about us!
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