IRS hikes tax break for LTCI premiums

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.