Long-Term Care Insurance and Tax Deductions - WI

Beginning in 1997, the Federal Government approved tax deductions for people paying premiums on tax-qualified long-term care insurance policies. Taxpayers who itemize may deduct the cost of eligible long-term care insurance premiums as a medical expense on the tax return form Schedule A, in excess of 7 ½% of your gross income. There is an age-based limit on the amount of premiums for purposes of this deduction, which in some cases may be less than the actual policy costs. ¹

[For 2003, at age 40 and under, a long-term care policyholder may be able to deduct up to $250 in premiums. From ages 41-50, a long-term care insurance policy holder may be able to deduct up to $470 in premiums; for ages 51-60 the deduction may be up to $940 in premiums and from 61-70 the deduction may be up to $2,510 in premiums. For those older than 70, the maximum allowable premium deduction is $3,130 in premiums.]

A tax-qualified policy must contain certain provisions. Many of these provisions pertain to the manner in which future benefits can be triggered. If a policy contains all of the required provisions, it can generally be considered a Qualified Long-Term Care Insurance Contract for tax purposes.

Following are a few of the most important provisions a long-term care insurance policy must comply with in order to qualify for tax-favored treatment:

• The policy must be guaranteed renewable
• In order for benefits to be paid, there must be the expectation that the disability ill be long-term
• A licensed health care practitioner must certify the individual as chronically ill within the last 12 months.
• The certification must be based on either one or both of the following events. First is the inability to perform, without substantial help, at least two of the six Activities of Daily Living (ADLs) for at least 90 days. The ADLs are eating, toileting, transferring, bathing, dressing, and continence. The policy must use at least five of these to measure ADL dependency. Second is the need for substantial supervision due to severe cognitive impairment in order to protect the individual from threats to health and safety.
• Non-forfeiture benefits and benefit increase options (inflation protection) must be offered to the insured, but are not required to be part of the base policy
• Benefits under the Qualified Long-Term Care Insurance contract cannot duplicate Medicare benefits

Please note: This Web site is for informational purposes only and is not intended to be a binding contract. You should contact your professional advisors for legal, tax or accounting advice.

Click here for important policy form information.
Click here for important legal information.

¹ 26 IRC Section 162(I) (1) (C)

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