Is my long term care premium tax deductible?

At end of year, I usually get this question coming up: are my long term care insurance premiums tax deductible?

The answer is “yes”, “no”, and “maybe”. And before you throw your shoe at me for such a waffle answer, the underlying problem is that the answer depends on several factors. Read on and see if any of these fit you – but be advised: consult with a tax professional. Tax professionals know the ins and outs of this and will guide you carefully. I am not a tax professional. Perhaps, however, this will help you know what questions to ask of your tax advisor.

Federal taxes: as of the writing of this blog (because laws change – this is written Dec 2019), to utilize your premiums on your federal tax return you must itemize expenses, including medical expenses. Standard deductions will not apply. If you have itemized, and if your medical expenses equal 7.5% of your income (or more), then your medical expenses can be deducted. Your long term care premium can be included in that if you own a tax qualified long term care product. Please note the last statement well: if you have a TAX QUALIFIED long term care policy. It is possible you do not own a tax-qualified long term care policy – it is a useful thing to know.

If you do own a tax-qualified policy, here are the parameters:

1) If you own a traditional long term care policy – all of the premium can be utilized

2) If you own a hybrid policy (life/ltci or annuity/ltci) then you have to know how much of the premium was for the qualified long term care rider. Not every company breaks it into parts. Ask your insurance company for the numbers and they can tell you if (and how much) of the premium is for the qualified long term care rider.

On this issue I will say only one more thing: check with your tax advisor. Especially if you have a hybrid policy. There have been some concerns expressed that the shortened pay windows on hybrids (a single payment, 10-pay or 5-pay) artificially raise the amount of premium and so you may not be able to include all of it in the formula.

State taxes: at the risk of sounding like a broken record, check with your tax advisor. Some states have a line item deduction and some an income reduction on state taxes if you own a qualified long term care policy. Other states have nothing. Further, states can change their policy on this any given year. Thus it really is necessary to have someone who keeps up with the intricacies of this in your state to get a proper answer. But it is worth asking – maybe it will be a “yes”.

Finally, what happens if you do not have a qualified long term care product (say a “Critical Illness” product or rider). The answer again is check with your advisor. But in my experience if it is not “tax qualified” it means you have no tax benefits with the premium.