The Internal Revenue Service (IRS) has announced the amount taxpayers can deduct from their 2021 income as a result of buying long-term care insurance.
Premiums for "qualified" long-term care insurance policies (see explanation below) are tax deductible to the extent that they, along with other unreimbursed medical expenses (including Medicare premiums), exceed 10 percent of the insured's adjusted gross income in 2021 (the threshold is 7.5 percent for the 2020 tax year).
These premiums -- what the policyholder pays the insurance company to keep the policy in force -- are deductible for the taxpayer, his or her spouse and other dependents. (If you are self-employed, the tax-deductibility rules are a little different: You can take the amount of the premium as a deduction as long as you made a net profit; your medical expenses do not have to exceed a certain percentage of your income.) Additionally, these tax deductions allowed by the IRS for long-term care insurance premiums are generally not available with so-called hybrid policies, such as life insurance and annuity policies with a long-term care benefit.
Limits to Premium Deductibility for 2021
However, there is a limit on how large a premium can be deducted, depending on the age of the taxpayer at the end of the year. Following are the deductibility limits for tax year 2021. Any premium amounts for the year above these limits are not considered to be a medical expense.
|Attained age before the close of the taxable year||Maximum deduction for year|
|40 or less||$450|
|More than 40 but not more than 50||$850|
|More than 50 but not more than 60||$1,690|
|More than 60 but not more than 70||$4,520|
|More than 70||$5,640|
Another change announced by the IRS involves benefits from per diem or indemnity policies, which pay a predetermined amount each day. These benefits are not included in income except amounts that exceed the beneficiary's total qualified long-term care expenses or $400 per day, whichever is greater.
For these and other inflation adjustments from the IRS, click here. For tax year 2020 deductibility limits, click here.
What Is a "Qualified" Policy?
To be "qualified," policies issued on or after January 1, 1997, must adhere to certain requirements, among them that the policy must offer the consumer the options of "inflation" and "nonforfeiture" protection, although the consumer can choose not to purchase these features. Policies purchased before January 1, 1997, will be grandfathered and treated as "qualified" as long as they have been approved by the insurance commissioner of the state in which they are sold. For more on the "qualified" definition, click here.
Contact Us - Your Local Estate Planning Attorney
At Joseph L. Motta Co., we have made it our mission to help clients in similar situations to prepare the estate planning documents that will ensure they leave a legacy, not a predicament. Let us help you review your estate planning documents. Please call our office at 440-930-2826 to schedule a free consultation .
Plan for a Small Increase in 2021 Medicare Premiums
How to Choose a Medicare Advantage Plan
Millennials Taking Care of Aging Boomers Makes Long Term Care Planning Even More Important
Estate Planning Guide
Included in this 2020 Estate Planning Guide is a comprehensive look into:
Probate. In terms of estate planning, there are two forms of probate to be concerned about: – death probate and living probate. This Estate Planning Guide covers them both, explains the difference and how to avoid expenses and burdens that can be associated with the probate process.
Drafting a Last Will and Testament. Why is relying on a Will alone is not part of a comprehensive estate plan.
Benefits of a Living Trust. What is a revocable living trust and how can it be an efficient tool to avoiding probate at your death, as well as to avoid living probate in the event of your incapacity.