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IRS Issues Long-Term Care Premium Deductibility
Limits for 2006
By
ElderLawAnswers.com
Nov. 8, 2005- The Internal Revenue Service has
announced the 2006 limitations on the deductibility of long-term care
insurance premiums from taxes.
Premiums for "qualified" (see explanation below)
long-term care policies are treated as an unreimbursed medical expense.
These premiums – what the policyholder pays the insurance company to
keep the policy in force -- are deductible to the extent that they,
along with other unreimbursed medical expenses (including "Medigap"
insurance premiums), exceed 7.5 percent of the insured's adjusted gross
income.
Long-term care insurance premiums are deductible
for the taxpayer, his or her spouse and other dependents.
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 2006. Any premium
amounts above these limits are not considered to be a medical expense.
|
Attained age before the close of
the taxable year |
Maximum deduction |
|
40 or less |
$280 |
|
More than 40 but not more than 50 |
$530 |
|
More than 50 but not more than 60 |
$1,060 |
|
More than 60 but not more than 70 |
$2,830 |
|
More than 70 |
$3,530 |
What Is a "Qualified" Policy?
To be "qualified," policies issued on or after
January 1, 1997, must adhere to regulations established by the National
Association of Insurance Commissioners. Among the requirements are 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 and scroll down to "The tax deductibility of
long-term care insurance premiums".
The Taxation of Benefits
Benefits from reimbursement policies, which pay for
the actual services a beneficiary receives, are not included in income.
Benefits from per diem or indemnity policies, which pay a predetermined
amount each day, are not included in income except amounts that exceed
the beneficiary's total qualified long-term care expenses or $250 per
day (for 2006), whichever is greater.
For details on these and other tax law changes of
interest for 2006 (PDF format),
click here.
Note: If you pay Long-Term Care Insurance you must
file with the IRS Form 1099-LTC, Long-Term Care and Accelerated Death
Benefits.
Click here for IRS instructions.
The Georgetown University Long-Term Care Financing
Project has a two-page fact sheet, "Tax Code Treatment of Long-Term Care
and Long-Term Care Insurance." To download it in PDF format, go to:
http://ltc.georgetown.edu/pdfs/taxcode.pdf
(If you do not have the free PDF reader installed
on your computer, download it
here.)
For the home page of the Georgetown Long-Term Care
Financing Project - click
For more information on legal issues impacting
senior citizens –
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