Long Term Care Insurance Tax Information

Our state and federal governments recognize the value of long term care insurance coverage and give specific tax incentives to those who have this coverage under a Tax Qualified Long Term Care Policy as defined by IRC Section 7702B(b).  Premium amounts for individuals (based on the client’s age), for these policies can be deducted as a medical expense (subject to the 7 ½% of AGI threshold) on the federal income tax return (IRC Section 213(d)).  Age related caps for each person for 2011 and 2012 are as listed in the chart below:

Age	2011	2012
Under 40	$340	$350
41-50	$640	$660
51-60	$1,270	$1,310
61-70	$3,390	$3,500
71+	$4,240	$4,370

For Business Owners: 

Self-employed individuals, greater than 2% S-Corporation shareholders with wages from the S-Corporation, or Partners can deduct the age related amounts above as a self-employed health insurance premium (not subject to the

7 ½% threshold). For C-Corporations, the full premium amount for owners and employees is deductible —it is not subject to the age-related caps above.  Regardless of the tax structure of an organization, all premiums paid for employees are 100% deductible (IRC Section 162(l) and Section 106).

Generally, premiums paid and benefits received are not considered taxable income (IRC 105 and 106(a)). Long Term Care Insurance can also be offered to selected classes of employees (Treas.Reg.1.105, 1.106)—it does not need to be offered to every employee.

North Carolina has a state tax credit for long term care insurance premiums. The law gives a tax credit beginning tax year 2007 and extending through 2012. This law allows a tax credit of 15% of the premium up to $350 for each long term care contract for which a credit is claimed.  This tax credit is available to those whose adjusted gross income is less than the amounts listed below:

Married, filing jointly                  $100,000           
Single                                                60,000

Married, filing separately               50,000           
Head of Household                         80,000

No “double dipping” is allowed. There is no credit allowed for payments that are deducted from, or not included in, the taxpayer’s gross income for the taxable year.

Many other states have incentives for long term care insurance premiums. Contact us for more information.