IRS hikes tax break for LTCI premiums

Small-business owners stand to benefit from deductions

Oct 18, 2012 @ 5:01 pm

By Darla Mercado

Next year, filers to the Internal Revenue Service will be able to deduct more from their federal taxes for long-term-care insurance premiums.

In order to qualify, the insurance contract must be guaranteed renewable and must not provide for a cash surrender value. The policy also must provide that refunds and dividends under the contract be used to either reduce future premiums or raise future benefits, and they must not pay expenses incurred for services that would be reimbursed under Medicare, with the exception of situations where Medicare is a secondary payer.

In 2013, taxpayers 40 and younger will be able to deduct up to $360 for their LTCI premiums, up from $350. For the bracket between 41 and 50, the deductible limit will be upped to $680, compared with $660 this year. Those policyholders between 51 and 60 will be able to deduct up to $1,360, compared with $1,310 in 2012. Taxpayers who are over 60 but no more than 70 can deduct up to $3,640 in 2013, up from $3,500 this year. Finally, those who are over 70 can deduct up to $4,550 next year, up from $4,370 in 2012.

Small-business owners, namely C corporations, stand to benefit in situations when the employer buys a tax-qualified LTCI policy on behalf of its employees or their spouses and dependents, according to Jesse Slome, executive director of the American Association for Long-Term Care Insurance. These businesses can deduct the full cost of long-term-care coverage.

For LTCI policyholders, the benefits of tax deductibility really kick in as they get older. Not only does the deduction rise sharply after 60, but it rises at a time when many people experience a steady decline or stagnation in income because they've stopped working, Mr. Slome noted.

“It's not an immediate benefit, but it's a wonderful one when you're down the road and need the tax deductibility,” he said.


What do you think?

View comments

Recommended for you

Featured video


2019 concerns keeping successful advisory firm leaders up at night

These are the greatest business challenges for next year, according to InvestmentNews' Best Practices honorees.

Latest news & opinion

Some good news about female recruitment in financial advice

Each of four core advisory positions tracked in InvestmentNews' benchmarking study has seen an uptick in women entrants.

10 ETFs that are up more than 35% this year

Amid the stock market carnage, there are still some funds posting big gains.

10 biggest HSA providers rated

Morningstar rated the largest plan providers as investment and spending vehicles.

Morningstar: DOL fiduciary rule reduces inflows to mutual funds with high loads

With the measure's demise, will the SEC's advice reform sustain the momentum?

6 tax strategies for year-end planning

How to help clients maximize their wealth using specific tax strategies before the end of the year.


Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting It'll help us continue to serve you.

Yes, show me how to whitelist

Ad blocker detected. Please whitelist us or give premium a try.


Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print