Nov. 8, 2005- The Internal Revenue Service has announced the 2006
limitations on the deductibility of long-term care insurance premiums
from taxes.
Premiums for "qualified" (see explanation below) long-term care
policies are treated as an unreimbursed medical expense. These premiums
what the policyholder pays the insurance company to keep the policy in
force -- are deductible to the extent that they, along with other
unreimbursed medical expenses (including "Medigap" insurance premiums),
exceed 7.5 percent of the insured's adjusted gross income.
Long-term care insurance premiums are deductible for the taxpayer, his or her spouse and other dependents.
However, there is a limit on how large a premium can be deducted,
depending on the age of the taxpayer at the end of the year. Following
are the deductibility limits for 2006. Any premium amounts above these
limits are not considered to be a medical expense.
Attained age before the close Maximum deduction
of the taxable year
40 or less $280
More than 40 but not more than 50 $530
More than 50 but not more than 60 $1,060
More than 60 but not more than 70 $2,830
More than 70 $3,530
What Is a "Qualified" Policy?
To be "qualified," policies issued on or after January 1, 1997, must
adhere to regulations established by the National Association of
Insurance Commissioners. Among the requirements are that the policy
must offer the consumer the options of "inflation" and "nonforfeiture"
protection, although the consumer can choose not to purchase these
features. Policies purchased before January 1, 1997, will be
grandfathered and treated as "qualified" as long as they have been
approved by the insurance commissioner of the state in which they are
sold.
The Taxation of Benefits
Benefits from reimbursement policies, which pay for the actual services
a beneficiary receives, are not included in income. Benefits from per
diem or indemnity policies, which pay a predetermined amount each day,
are not included in income except amounts that exceed the beneficiary's
total qualified long-term care expenses or $250 per day (for 2006),
whichever is greater.
M. Sanders is a long term care insurance marketing specialist. She is
appointed throughout the United States as a long term care insurance
representative with several major insurance carriers. Her website, About Long Term Care and LTC Insurance,
contains information and articles pertaining to long term care,
insurance and other related senior topics. It is her goal to inform the
public about these increasingly important topics.
