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IRS Releases 2022 LTC Insurance Tax Guidance

12/22/2021

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The IRS has released its annual inflation adjustments for tax year 2022.  (Revenue Procedure 2021-45)

​This includes the amount of LTC insurance premiums which are considered deductible health insurance premiums (the "Eligible Premium") and the tax-free benefit amount for "cash benefit" indemnity plan payments - what the IRS calls "per diem" plans.

FOR CLAIMS IN 2022 with a "cash benefit" or indemnity (per diem) policy the minimum tax-free benefit DECREASES to $390 per day ($11,862/month).
(This is a $10/day DECREASE from 2021 which was $400/day.)
​
  • LTC insurance benefits received on an indemnity (per diem) basis are tax-free to the GREATER OF $390/day (2022) OR your actual expenses paid for care if greater.
    • For example, a LTCI cash benefit payment of $9,000 per month ($300/day) is tax free no matter what was spent on care, even if less, since $300/day is less than the IRS per diem limit.
    • If the per diem benefit received is $430 per day, then $40 per day (2022) would have to be claimed as taxable income.
    • If the per diem benefit received is $430 per day, but you have $430 or more per day in paid caregiving charges, then it would all be tax-free.​

FOR PREMIUMS PAID IN 2022 the amount of tax-qualified premiums paid based on your age at the end of the tax year (on 12/31/2022) are considered a deductible medical expense up to the following age-based, "Eligible Premium" limits:
Age at end of 2022            Maximum Deductible Premium
40 or younger                     $450
41 to 50                                  $850
51 to 60                                  $1,690
61 to 70                                  $4,510
71 or older                             $5,640

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 7.5% of your Adjusted Gross Income (AGI), and only the amount above the 7.5% 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 for yourself and a spouse.

BUSINESS OWNERS (and spouses) get to take the age-based, Eligible Premium deduction "above-the-line" on Form 1040, as part of the "Self Employed Health Insurance Deduction" (Form 1040, Schedule 1, Line 16).  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 AND TO SEE THE 2021 LTC TAX GUIDELINES FOR 2021 TAX RETURNS AND AS COMPARED TO THE NEW NUMBERS FOR 2022.


​* 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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IRS Releases 2021 LTC Insurance Tax Guidance

10/26/2020

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The IRS just released its annual inflation adjustments for tax year 2021.  (Revenue Procedure 2020-45)

​This includes the amount of LTC insurance premiums which are considered deductible health insurance premiums (the "Eligible Premium") and the tax-free benefit amount for "cash benefit" indemnity plan payments - what the IRS calls "per diem" plans.
FOR CLAIMS IN 2021 with a "cash benefit" or indemnity (per diem) policy the minimum tax-free benefit increases to $400 per day ($12,167/month).
(This is a $20/day increase from 2020 which was $380/day.)
​
  • LTC insurance benefits received on an indemnity (per diem) basis are tax-free to the GREATER OF $400/day (2021) OR your actual expenses paid for care if greater.
    • For example, a LTCI cash benefit payment of $9,000 per month ($300/day) is tax free no matter what was spent on care, even if less, since $300/day is less than the IRS per diem limit.
    • If the per diem benefit received is $430 per day, then $30 per day (2021) would have to be claimed as taxable income.
    • If the per diem benefit received is $430 per day, but you have $430 or more per day in paid caregiving charges, then it would all be tax-free.​
FOR PREMIUMS PAID IN 2021 the amount of tax-qualified premiums paid based on your age at the end of the tax year (on 12/31/2021) are considered a deductible medical expense up to the following age-based, "Eligible Premium" limits:
Age at end of 2021
Maximum Deductible Premium
40 or younger
$450
41 to 50
$850
51 to 60
$1,690
61 to 70
$4,520
71 or older
$5,640
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 for yourself and a spouse.

BUSINESS OWNERS (and spouses) get to take the age-based, Eligible Premium deduction "above-the-line" on Form 1040, as part of the "Self Employed Health Insurance Deduction" (Form 1040, Schedule 1, Line 16).  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 AND TO SEE THE 2020 LTC TAX GUIDELIENS COMPARED TO 2021.

​* 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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IRS Releases 2020 LTC Insurance Tax Guidance

11/7/2019

1 Comment

 
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.)
​
  • LTC insurance benefits received on an indemnity (per diem) basis are tax-free to the GREATER OF $380/day (2020) OR your actual expenses paid for care if greater.
    • For example, a LTCI cash benefit payment of $9,000 per month ($300/day) is tax free no matter what was spent on care, even if less, since $300/day is less than the IRS per diem limit.
    • If the per diem benefit received is $400 per day, then $20 per day (2020) would have to be claimed as taxable income.
    • If the per diem benefit received is $400 per day, but you have $400 or more per day in paid caregiving charges, then it would all be tax-free.
  • ​NOTE that while "reimbursement"-type LTC policies are generally paid tax-free no matter what the benefit amount is, if multiple policies pay for the same charge, then the per diem limit could also apply.  Always check with your tax advisor for personal guidance.*
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:
Age at end of 2020
Maximum Deductible Premium
40 or less
$  430
41 to 50
$  810
51 to 60
$ 1,630
61 to 70
$ 4,350
71 and older
$ 5,430
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.

Read more from the IRS website by clicking here:
https://www.irs.gov/newsroom/irs-provides-tax-inflation-adjustments-for-tax-year-2020

​* 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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Buy LTC Insurance Before the End of the Year, Get a Deduction

12/17/2014

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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:

Age by end of Tax Year
Age 40 or less
Age 41 - 50
Age 51 - 60
Age 61- 70
Age 71 and older
2014
$   370
$   700
$1,400
$3,720
$4,660
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.
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IRS Increases 2015 Tax Deductions for LTC Insurance

11/19/2014

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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: 

Age by end of Tax Year
Age 40 or less
Age 41 - 50
Age 51 - 60
Age 61- 70
Age 71 and older
2014
$   370
$   700
$1,400
$3,720
$4,660
2015
$   380
$   710
$1,430
$3,800
$4,750
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. Agency owner, Bill Comfort, The LTCpro® is a LTC specialist celebrating 30+ years of experience since 1991! 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.
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  • TakeCare!
    • LTC Awareness
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  • LTC Rate Increases
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    • Bill Comfort
    • TakeCare! Specialists
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    • Rinny
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