December 6, 2014
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On December 22, 2017, The Tax Cuts and Jobs Act was signed into law. The information in this article predates the tax reform legislation and may not apply to tax returns starting in the 2018 tax year. You may wish to speak to your tax advisor about the latest tax law. This publication is provided for your convenience and does not constitute legal advice. This publication is protected by copyright.
Many taxpayers as they get older acquire insurance to cover the costs of their care should they become chronically ill. This type of insurance is referred to as long-term care insurance and amounts paid for long-term care services and certain premiums paid on long-term care insurance are deductible as medical expenses on Schedule A. Costs of care provided by a relative who is not a licensed professional or by a related corporation or partnership don't qualify. The maximum amount of long-term care premiums treated as medical depends on the insured's age and is inflation-indexed annually. The following are the deductible amounts for the past few years. If the taxpayer paid long-term care premiums and qualifies for a medical deduction on Schedule A of their tax return, and did not include the long-term care premiums in their medical deduction, the return can be amended to include the deduction. Please call this office to see if the deduction will make a difference and to have us prepare the amended returns.
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Deduction Limitations
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Age
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2014
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2015
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2016
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2017
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40 or less
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370
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380
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390
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410
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41 to 50
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700
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710
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730
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770
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51 to 60
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1,400
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1,430
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1,460
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1,530
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61 to 70
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3,720
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3,800
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3,900
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4,090
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71 & older
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4,660
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4,750
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4,870
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5,110
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Per Diem
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330
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330
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340
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360
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Employees generally won't be taxed on the value of coverage under employer-provided long-term care plans. However, the exclusion doesn't apply if coverage is provided through a cafeteria plan. In addition, long-term care services can't be reimbursed tax-free under a flexible spending account.
The
"long-term care contract
" is an insurance contract that provides only coverage of long-term care and meets certain other requirements. Some long-term care riders to life insurance will also qualify. Benefits under a long-term care policy (other than dividends or premium refunds) are generally tax-free. For per-diem contracts that pay a flat-rate benefit without regard to actual long-term care expenses incurred, the inflation adjusted exclusion is limited to $360 a day in 2017 (up from $340 in 2016), except when long-term care costs incurred are more than the flat rate and are not otherwise compensated by some other means.
A contract isn't treated as a qualified long-term care contract unless the determination of being chronically ill takes into account at least five activities of daily living: eating,, toileting, transferring, bathing, dressing and continence.
"Long-term care services"
include necessary diagnostic, preventive, therapeutic, curing, treating, mitigating, and rehabilitative services, maintenance or personal care services prescribed by a licensed practitioner for the chronically ill.
A
"Chronically ill person"
is one who has been certified by a licensed healthcare practitioner within the previous 12 months as: (1) unable to perform at least two activities of daily living (eating, toileting, transferring, bathing, dressing, continence) without substantial assistance for a period of 90 days due to loss of functional capacity, (2) having a similar level of disability as determined in regulations, or (3) requiring substantial supervision to protect from threats to health and safety due to severe cognitive impairment. The requirement that a qualified long-term care insurance contract must base its determination of whether an individual is chronically ill by taking into account five activities of daily living applies only to (1) above (being unable to perform at least two activities of daily living).
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