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Retirement Planning

Tax Incentives for Long Term Care  

April 2013

Issue 14          

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Nancy Gould LTC




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Nancy is co-Founder of
The Boxwood Alliance
for Active Aging



Nancy Gould, President Estate Planning Council of Putnam County
Tax Incentive Can Reduce the Cost of
Long Term Care Protection  


Tax time is a good time to take a second look at creating a long term care protection program. There are tax deductions and tax credits which partially subsidize the cost.


My first point is not strictly a tax issue but a basic fact that is misunderstood. Medicare does not cover long term care costs.


All tax qualified long term care policies are eligible for a Federal tax deduction. For 2012 tax year the deductions range from $350 to $4370 depending on age. Over time this deduction can save thousands of dollars.


Policy owners in New York State can take 20% of premium as a credit every year.  Use form IT-249 Found on my web site  


To qualify for the Federal deductions individuals must itemize deductions (Schedule A). Add the eligible premium amount to other unreimbursed medical expenses (line 1). The amount exceeding 7.5% of Adjusted Gross Income is deductible.


Gift Tax Exclusion may be used. However, payment of tax qualified LTCI premiums for the donee may reduce the annual gift tax exclusion amount.


Health Savings Accounts (HSAs) Tax qualified LTCI premiums can be reimbursed through HSA, up to the eligible premium amount.


Long term care insurance premiums are not an eligible medical expense and therefore cannot be reimbursed through an FSA.


Per diem (indemnity policy) benefits are not included in income except the amounts greater than $310 per day (2012).


Reimbursement policy benefits are 100% tax free.


You can check with me for policy options and more details on the points discussed above.