If you pay for long-term care insurance, the Internal Revenue Service has a bit of good news for you: Next year you can deduct a little more of your premium as a medical expense on your federal income taxes.
Each year, the IRS increases the federal deductibility limits for long-term care insurance costs to keep pace with inflation. Although the federal increases are small, the tax advantages of the policies can provide significant savings, particularly for retirees and small businesses, according to Jesse Slome, executive director of the American Association for Long-Term Care Insurance.
2013 federal long-term care insurance tax deduction limits for individuals, by age
Long-term care comprises many services for people who can no longer take care of themselves. It includes help with day-to-day living tasks, such as eating or bathing. Medicare generally doesn’t cover long-term care, and there is no affordable health insurance alternative that provides the services and protections of long-term care insurance.
Read these basics of long-term care insurance.
The amount you can deduct for long-term care insurance increases as you age. In 2013 individuals age 40 and younger will be able to deduct up to $360 in premiums as medical expenses. People age 70 and older will be able to count up to $4,550 in premiums as deductible medical expenses.
For small businesses structured as ‘C’ corporations, the cost of long-term care insurance can be fully tax-deductible, even for spouses, Slome says. In addition, a business can form a group that can be covered under a corporate-paid plan.
“Medical expenses are deductible if you itemize your deductions,” Slome said in a prepared statement. “However, there is a limit on how much of those medical expenses you can deduct based upon your income for the year.”
Long-term care for the disabled and the elderly is expensive to provide. Slome says it is to government’s advantage to offer tax incentives for people who buy long-term care insurance policies. “The federal government and the states recognize that you either depend on families and friends, pay for it yourself, or turn to government programs like Medicaid.”
The association has more information on taxation and long-term care at its website.