Long-Term Care is an important topic you should discuss with your family and Financial Advisor. It covers all long term care costs including those not covered by health insurance or Medicare. Individuals who are unable to achieve daily activities such as dressing, eating, toileting and transferring, the insurance covers them. There are types of care the policies offer; traditional, hybrid, tax-qualified and non-tax qualified policies.
The Congress supported long-term care insurance benefits to be tax- free with its introduction in 1996 under the Health Insurance Portability and Accountability Act IRC Section 7702B. However, over the years with tax deductions introduced, LTC receives a tax treatment along with other medical expenses. Long term care has benefits that help people with daily activities or helps those with cognitive impairment. Most policies are characterized by an elimination period for deductions.
For the long-term care insurance to undergo a reduction, it must be tax-qualified covered. However, Non-tax qualified care can be eligible if the taxpayer cannot perform two or more daily activities. Other activities such as premiums paid for tax-qualified LTCI are deductible if the premiums are payable by the taxpayer, for the spouse or any tax dependent.
Both the long-term insurance and other medical expenses can be deductible together. However, the rule for medical expenses applies to claim this deduction. For an individual purchase, the expenses are itemizable, and any portion exceeding 10% of Adjusted Gross Income (AGI) is deductible. Some LTCI expenses count as a medical expense whereby a specific maximum annual dollar amount indexed for inflation to which premiums is deducted based on age limitations. Its planning is purchasing via a shared care policy where two people share benefits. Most companies refer to them as “couples” even if they are not spouses. A tax deduction increases when there is an age difference between the “couples” even after retirement. Tax break rules of long term care are different when premiums are payable through a business. The employer pays the premiums, and the employee amount is deductible as a business expense. The employer’s contribution is left out from the employee’s AGI. Age limits are not a base for deductions. Purchasing LTCI as a self-employed individual, the deductions include the eligible premiums paid for the dependents and the spouse. To take this deduction, you are not subjected to attain 10% of AGI rule because the self-employed health insurance deduction is a significant line deduction and not an itemized deduction.
The deeper we go into planning for long-term care, the more complicated it could get. It may be wise for you to get your questions answered by a financial professional planning for long-term care with clients, daily. We are here to assist you.
Eric and Jennifer Lahaie
JEHM Wealth & Retirement
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