Taxpayers with long-term care insurance policies can deduct some of their premiums from their income. Whether you can use the deduction requires comparing your medical expenses to your income in a complicated formula.
Premiums for qualified long-term care insurance policies are tax deductible to the extent that they, along with other unreimbursed medical expenses (including Medicare premiums), exceed 10 percent of the insured’s adjusted gross income. In tax year 2016, taxpayers 65 and older only need medical expenses to exceed 7.5 percent of their income, but in 2017, taxpayers 65 and older will have the same 10 percent rule as everyone else.
The amount of long-term care insurance premium that is deductible is based on the taxpayer’s age and changes each year. For the 2016 tax year, taxpayers who are 40 or younger can deduct only $390 a year, taxpayers between 40 and 50 can deduct $730, taxpayers between 50 and 60 can deduct $1460, taxpayers between 60 and 70 can deduct $3,900, and taxpayers who are 70 or older can deduct up to $4,870 in premiums.
You will need to total all of your medical expenses and compare them to your income. For example, suppose you are a 64-year-old and have an adjusted gross income of $30,000 and long-term care premiums totaling $5,000. In addition you also have $1,000 in other medical expenses. Ten percent of $30,000 is $3,000. You can only deduct medical expenses that exceed $3,000. The 2016 limit for deducting long-term care premiums at age 64 is $3,900. That means you can only count $3,900 out of the $5,000 in long-term care premiums. If you add the $3,900 in long-term care premiums to the $1,000 in other expenses your total medical expenses are $4,900. You can deduct $1,900 in medical expenses. (($3,900 + $1,000) = $4,900 – $3,000 = $1,900). Another way to look at it would be: the amount of LTC premium above $3,000 that can be deducted is $900 plus the other $1,000 of medical expenses.
If you are 70 in 2016, the calculation changes because your medical expenses only need to exceed 7.5 percent of his income, which would be $2,250. The amount of premiums you can deduct is also increased because of your age – at 70 you can deduct up to $4,870 in LTC premiums. Subtracting the income limit from your medical expenses ($4,870 in long-term care premiums and $1,000 in other expenses), you can deduct $3,620 in medical expenses from your income. In 2017 however, you will only be able to deduct medical expenses that exceeded 10 percent of income, so the amount you will be able to deduct will go down.
In any event, it is important to know that you may be able to deduct some of your Long Term Care insurance premiums from your annual income tax.