Long run care insurance coverage insurance policies supply a substantial amount of advantages which can be exempted from federal taxation and most state revenue taxes. Premiums paid on the insurance policies are handled like medical health insurance premiums, so that they qualify for federal revenue tax deductions. Nonetheless, there are limits primarily based on age.
The federal authorities’s tax deductible limits are primarily based on complete annual premiums paid and the age of the policyholder. For individuals age 40 and beneath, the utmost annual deduction on long run care insurance coverage is $360 for 2013. These aged 41 by way of 50 have a most annual deduction of $680 whereas individuals from age 51 by way of 60 have a most deduction of $1,360. The deduction for individuals from age 61 by way of 70 is $three,640 whereas these over age 70 have a present most deduction of $four,550.
The tax-exempt standing on premiums paid for long run care insurance policies is completely different from these paid for all times insurance policy. Life insurance coverage premiums usually occasions solely are tax exempt when the advantages paid out from them qualify for revenue taxation. If a life insurance coverage plan qualifies for tax exempt standing when paying premiums, the advantages usually are taxed by the federal authorities and a few state governments as revenue.
To qualify for federal revenue tax breaks and most state revenue tax breaks, a long run care insurance coverage coverage have to be assured renewable and never develop money worth over time. Such insurance policies are underwritten by life insurance coverage corporations. The federal authorities at the moment doesn’t tax advantages paying not more than $320 per day. Quantities above $320 could be taxed as revenue, however the quantity is adjusted annually to account for inflation.
Typically, every day advantages that exceed the present $320 federal restrict however don’t exceed the every day value of prolonged care is not going to be taxed because of the reality they’re spent on care as a substitute of amounting to further revenue. Complete insurance coverage advantages are reported to the federal authorities by life insurers, who situation 1099 tax varieties to policyholders. Policyholders then should declare any taxable quantities on a federal Kind 8853.
The advantages may be exhausted rapidly when wanting on the common value of care. A semi-private nursing dwelling charged a mean fee of greater than $220 per day in 2012, which is the same as greater than $80,000 per 12 months and simply might exceed even one of the best 12 months of earnings for most individuals throughout their working careers. An assisted-living facility is extra reasonably priced at about $44,000 per 12 months in prices with different companies costing extra. Residence well being care prices ran about $21 per hour in 2012, making in-home care probably the most reasonably priced of long run care companies.