Long-term care insurance can be an important part of planning for the twilight of your life. Despite everyone hoping they’ll be healthy and active until the end of their days, most of us end up needing a bit of help getting through the day when we get older. Like most medical care in the United States, this can end up being very expensive.
Many people invest in long-term care insurance early so that they will have an easier time paying for the help they need when they need it. This brings up many questions, but one that you may not consider right away is if there are any tax implications to buying long-term care insurance. In short: yes – under certain conditions. Long-term care insurance premiums can have a positive impact on your taxes. We’ll explain exactly how it works below.
For more help with long-term care insurance, taxes or any other financial considerations, consider working with a financial advisor.
Long-Term Care Insurance Basics
Long-term care insurance works like any other insurance product — you enter into a contract with an insurance company, pay premiums and then have access to funds to pay for long-term care later in life. The amount you pay in premiums and how long you pay will be dependent on the individual contract you choose to enter.
Long-term care insurance can be used to pay for various services, including:
Some long-term care plans are also coupled with a life insurance component, meaning that if you don’t use all of the money you’ve put into the plan — say because you end up dying earlier than you figured or you’re just one of the lucky few who remains relatively healthy until shortly before death — your family gets a payment after you’ve died.
There are other ways to plan for long-term care payment, from investing to annuities to simply saving, but long-term care insurance is one of the more cost-effective ways of making it easier to pay for the care you or a loved one will need in old age.
Is Long-Term Care Insurance Tax Deductible?
Long-term care insurance premiums are indeed tax deductible, though there some rules you’ll need to know before you rush off to file your return. First, in order to be eligible for a tax deduction, the premiums you pay must exceed 7.5% of your adjusted gross income. For self-employed people the rules are a bit different; the premium can be taken as a tax deduction as long as they’ve made a net profit.
Second, there is a limit to how much you can deduct based on age. These are the limits for 2022:
40 and under: $450
41-50: $850
51-60: $1,690
61-70: $4,510
71 and older: $5,640
In order to qualify for a tax deduction, the policy must meet certain regulations set by the National Association of Insurance Commissioners. Make sure to check with your insurance broker to see that your plan does.
The Bottom Line
Long-term care insurance is a contact you enter into with an insurance company. You pay premiums for a set period of time, and in exchange you get money later in life to pay for long-term care services. The premiums you pay are tax deductible, but certain conditions must be met and there is a limit to the amount of money you can deduct each year.
Tax Planning Tips
For help with managing tax deductions or any other financial considerations, consider working with a financial advisor. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Use SmartAsset’s free tax return calculator to get a sense of what your tax return might look like before you even file.
Photo credit: ©iStock.com/smartstock, ©iStock.com/yellowpicturestudio, ©iStock.com/Dean Mitchell
The post Is Long-Term Care Insurance Tax Deductible? appeared first on SmartAsset Blog.
Source: https://finance.yahoo.com/news/deduct-long-term-care-insurance-130006165.html