If your total eligible medical expenses for the year exceed 7.5 percent of your adjusted gross income, you may be able to take the amount of your LTCI policy premium as a deduction on your federal income tax return.
However, note that only certain LTCI policies qualify.
What Is Long-Term Care Insurance, and Do I Need It?
Long-term care insurance helps you cover costs for services you will likely need as you grow older, such as nursing home care or home health care.
According to LongTermCare.gov, U.S. seniors aged 65 today face a nearly 70 percent chance of requiring some form of long-term care later in life. In fact, almost a fifth of them will need it for more than five years.
Policies for this type of insurance can vary dramatically. Most will provide you with between $2,000 and $10,000 in funds each month, with premiums costing up to $5,000 a year. The younger you are when you purchase LTCI, the less pricey your annual premiums will generally be.
Keep in mind, too, that the average prices for long-term care have skyrocketed over time. For example, a private room in a nursing home will currently cost you more than $9,000 a month on average.
Unless you have very significant wealth, paying for LTCI may be well worth the cost, given how quickly long-term care can drain your retirement savings.
Can I Deduct My Long-Term Care Insurance Premium?
As mentioned above, only certain LTCI policies are tax-deductible. If your LTCI policy is considered “qualified” for tax deductibility, your total eligible medical expenses (including your LTCI policy premium) for the year also need to exceed 7.5 percent of your adjusted gross income in order you to be able to deduct your premium.
In addition, you are limited in how large a premium you can deduct. Read more about these caveats below:
1. Tax-Qualified Policies – To qualify for tax deductibility, your LTCI policy is required to meet specific rules, as outlined by the National Association of Insurance Commissioners (NAIC).
If you purchased your policy before January 1, 1997, it is likely qualified. (Double-check with your insurance broker or their state’s insurance commission.)
Policies purchased on or after January 1, 1997, have to meet a number of federal standards. Learn more about these standards on Page 9 of the NAIC’s Shopper’s Guide to Long-Term Care Insurance, available in PDF format.
2. Deduction Limits – The limit on your deduction depends on your age at year’s end. The IRS annually issues adjustments to these limits; it increased the 2023 tax-deductible limits by about 6 percent since 2022.
Note that if your annual premium amount for 2023 exceeds the limit provided in the list that follows, it will not be considered a medical expense:
Attained age before the close of the taxable year
- Age 40 or under - $480 (up from $450)
- Age 41 to 50 - $890 (up from $850)
- Age 51 to 60 - $1,790 (up from $1,690)
- Age 61 to 70 - $4,770 (up from $4,510)
- Age 71 and over - $5,960 (up from $5,640)
3. Other Caveats
- If you are self-employed, you can take the amount of the policy premium as a deduction if you made a net profit. Your medical expenses do not necessarily need to have exceeded 7.5 percent of your income.
- Most hybrid life insurance policies are typically ineligible for tax deductions.
- Note as well that 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 $420 per day (for 2023), whichever is greater.
For further details on these and other inflation adjustments, access the complete PDF from the IRS website.
To get an idea of how much long-term care may cost you, consider visiting Genworth’s Cost of Care online tool to calculate the cost of care where you live.