Napier & Company, LCC

Long term care insurance can be deducted in the same manner as accident and health insurance. The premium is deductible as a medical expense along with any unreimbursed medical expenses paid by the taxpayer. If a self-employed person pays for long-term care insurance, then the premium can be used as a self-employed health insurance deduction.

This insurance covers only “qualified” long-term care expenses. Expenses covered under Medicare are not covered, nor are expenses that are reimbursable by Social Security. The contract must be renewable and not provide a cash surrender value. Premium refunds or dividends can be used to reduce future premiums paid or increase future benefits paid.

Benefits of long term care insurance:

• Monies received are 100% tax free if the actual expenses are paid by the contract directly and/or used for long term care expenses.
• Monies received are 100% tax free if the patient is terminally ill and the contract pays a per diem (set dollar amount). Note that the maximum per day amount that is tax free is $240. If the per diem amount exceeds the actual expenses then only the amount that exceeds the $240 is taxable.

Qualified Expenses for Chronically Ill Patients:

• Expenses incurred for diagnosis, preventative, therapeutic, curing, treating and rehabilitation of chronically ill patients.
• Personal care and maintenance expenses.
• Long-term care must be prescribed by a licensed health care provider. Services do not have to be provided by a trained individual or registered nurse, however if the services are provided by relatives such as spouse, children or parents then the expenses are not deductible.

In addition to the above, Oregon has a long-term care insurance premium credit. This credit is the lesser of 15% of the premium paid or $500. If married filing separately, the combined credits cannot exceed the amount allowed on a joint return. There is an income adjustment for the Oregon return, if a federal benefit was received by way of a deduction. To be able to take this Oregon credit, the policy needs to have been issued in the year 2000 or later, and the premiums paid need to be for yourself, parents, or your dependents.