2009/09/09

IRS Issues Long-Term Care Insurance Premium Deductibility Limits for 2006

IRS Issues Long-Term Care Insurance Premium Deductibility Limits for 2006

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           Maximum deduction
of the taxable year
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.

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.

Tags: long term care insurance, long term care insurance premiums, national association of insurance commissioners, tax, taxation, taxes.

Filed under Tax Refunds by taxrefunds on Sep 9th, 2009. #

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