IT’S TAX TIME – Long Term Care Insurance Tax Deductions For 2023

by: Begley Law Group

by Marianne Johnston, Esq.

Are you a taxpayer who has purchased long-term care insurance (LTCI)?

First, some good news:  Benefits received under a tax qualified long-term care policy are generally received tax free by the policy holder.

Second, some more good news – You may be able to deduct the cost – or at least part of the cost – of your LTCI from your 2023 income.

Uncle Sam – Federal Income Tax

Tax Deductions for Individuals

Tax-qualified policies are considered medical expenses.  For an individual who itemizes income tax deductions, LTCI premiums are included within your unreimbursed medical expenses and are tax deductible to the extent your total unreimbursed medical expenses exceed 7.5 % of your adjusted gross income (AGI).

The amount of the insurance premium treated as a medical expense is limited to the 2023 age-based numbers in the table below.

Age 40 and below   $480

Age 41-50               $890

Age 51-60               $1790

Age 61-70               $4770

Age 71 and over      $5960

Note:  The limit on premiums is for each person so married taxpayers are each entitled to their own deduction

Tax Deductions for Self-Employed Business Owners

A self-employed individual may deduct 100% of premium up to the 2023 age-based eligible premium amounts listed above.

Tax Deductions for Owners of Partnerships, Subchapter S Corporations, and LLCs

Partners of a Partnership, members of an LLC, or shareholders of greater than 2% of a Subchapter S Corporation are taxed as self-employed individuals.  If the entity pays the LTCI premium, the partner, member, shareholder includes the premium in their adjusted gross income (AGI).  The partner, member, shareholder then may deduct the age-based eligible amount on their tax return.  It is not necessary to meet the 7.5 % AGI threshold.

Tax Deductions for Owners of Subchapter C Corporations

When a C Corporation purchases LTCI on behalf of any of its employees, spouses or dependents, the corporation is eligible to take a 100% tax deduction as a business expense on the total of the premiums paid . The LTCI premium tax deduction is not subject to the age-based limitations in the table above.

What makes a LTCI policy tax qualified?

A tax-qualified plan must be guaranteed renewable, which means the insurance company cannot cancel your coverage because of a change in your health or age.  Your coverage will continue under the policy as long as you pay your premiums and have not used all your benefits.

State Income Tax

As you might expect, States treat the tax deductibility of LTCI premiums differently.

In New Jersey, deduction of LTCI premiums may be taken if they exceed 2% of AGI and cannot be reimbursed.