Have you been thinking “Are health care insurance premiums tax deductible?” lately? That’s fair to wonder especially when research predicts that nearly 70% of Americans will require long-term care at some point in their lives. With the high costs associated with health care and long-term care, understanding how to benefit from long-term care tax deductions for insurance premiums is only wise. It can significantly reduce your financial burden.

Health care and long-term care insurance are essential for protecting your finances against unexpected medical expenses and finding answers to “Is long-term care insurance tax deductible?” and other questions can help you maximize your benefits while minimizing your tax liability. This guide will help you with that, read along.

Eligibility Criteria for Deducting Health Care and Long-Term Care Insurance Premiums

To qualify for deductions on both health care and long-term care (LTC) premiums, you need to meet specific criteria:

Who Qualifies

You can deduct premiums if you pay for your own health insurance or if you are self-employed. This includes premiums paid for your spouse and dependents. If you’re a business owner, you may also deduct premiums paid for employees.

Itemizing vs. Standard Deduction

To claim deductions for health care and LTC insurance premiums, you must itemize your deductions on your tax return. If you choose the standard deduction, which was $13,850 for single filers in 2023, you cannot claim these premiums.

Specific Conditions

Health care and LTC premiums are deductible only if they exceed 7.5% of your adjusted gross income (AGI) for the tax year.

Deduction Limits Based on Age for Long-Term Care Insurance

The IRS has set specific limits on the deductibility of long-term care insurance premiums based on your age:

Age-Based Limits: At present, the maximum deductible amounts are as follows:

  • Under 40 years: $480
  • Ages 40 to 50: $890
  • Ages 51 to 60: $1,790
  • Ages 61 to 70: $4,770
  • Over 70 years: $5,960

Deductibility of Health Care Insurance Premiums

Now, when it comes to your health care insurance premiums, you can get them under particular conditions:

  • When They Are Deductible

    You can get your health insurance premiums deducted if you pay them with after-tax dollars and if your total medical expenses surpass 7.5 percent of your AGI.

  • Non-Deductibility for Employer-Sponsored Plans

    If your health insurance premiums are deducted from your paycheck on a pre-tax basis through an employer-sponsored plan, you cannot claim these amounts as deductions since you've already benefited from tax savings.

    For example, if you're paying $300 a month for health insurance through your employer's plan that deducts pre-tax dollars from your paycheck, this amount is not eligible for deduction.

Self-Employed Individuals and Deductibility

If you are a self-employed individual, you can enjoy special provisions regarding the deductibility of health care and LTC insurance premiums:

No AGI Threshold

Unlike traditional employees, self-employed individuals can deduct their health insurance premiums without needing to meet the 7.5% AGI threshold. This means you can lower your taxable income by the full amount of their premium payments.

Eligibility Requirements

To qualify for this deduction, you must not have access to an employer-subsidized health plan during the months you claim the deduction.

Non-Deductible Medical Expenses

When it comes to tax deductions for medical expenses, not everything qualifies. Here’s a list of common medical expenses that you cannot deduct:

  • Cosmetic Procedures

    Any cosmetic surgery or treatment aimed at improving appearance rather than health is not deductible. This includes procedures like facelifts, liposuction, and Botox injections.

  • Health Club Dues

    Membership fees for gyms or health clubs are generally not deductible, even if you join to improve your health.

  • Nutritional Supplements

    While some dietary supplements may be beneficial for health, they are not considered deductible medical expenses unless prescribed by a doctor for a specific medical condition.

  • Non-Prescription Medications

    Over-the-counter medications, such as pain relievers or cold medicine, do not qualify for deductions. Only prescription medications can be deducted.

  • Expenses Covered by Insurance

    If your health insurance covers certain expenses, you cannot deduct those amounts. For example, if your insurer pays for a procedure or treatment, you cannot claim that cost on your taxes.

Qualified Long-Term Care Insurance Policies

To be eligible for tax deductions, the long-term care insurance policies you choose must meet specific IRS standards:

Definition and Characteristics: A qualified LTC policy must provide coverage for necessary diagnostic, preventive, therapeutic, rehabilitative, maintenance, or personal care services.

IRS Standards Compliance: Make sure that your policy meets IRS guidelines regarding coverage duration and benefits to qualify for deductions. To qualify, ensure your LTCI policy meets the following criteria:

  • It must be guaranteed renewable.
  • It cannot provide a cash surrender value or any other money that can be paid or assigned as collateral.
  • Any refunds of premiums must reduce future premiums or increase future benefits.

Washington State Considerations for Health and Long-Term Care Tax Deductions

Washington State has unique tax considerations that may impact you as a resident seeking deductions:

  • No State Income Tax: Washington does not impose a state income tax. This means you won't pay state taxes on your income, but it also affects how you approach deductions since there’s no state income tax deduction available. You’ll want to focus on maximizing federal deductions instead.
  • WA Cares Fund: This state program provides long-term care benefits funded by a payroll tax. Starting in 2022, employees in Washington contribute to the WA Cares Fund to help cover the costs of long-term care services. Understanding how this program works is crucial because it may impact your need for private long-term care insurance. If you plan to rely on the WA Cares Fund in the future, consider how it fits into your overall long-term care planning strategy.

Strategies to Maximize Tax Benefits for Health and Long-Term Care Insurance

To make the most of your tax deductions related to health and long-term care insurance, follow these strategies:

  1. Plan Ahead

    Keep detailed records of all medical expenses throughout the year to see if you meet the threshold for itemizing deductions.

  2. Consult a Tax Professional

    Work with a CPA or tax advisor who understands the nuances of health and long-term care insurance deductions.

  3. Review Policy Types

    Evaluate different types of health and LTC policies available to you. Look for those that offer maximum benefits while meeting IRS standards for deductions.

  4. Stay Informed About Changes

    Tax laws can change frequently. Regularly review updates that may affect your eligibility for deductions or the amounts you can claim.

Final Thoughts – Making the Most of Tax Deductions for Health and Long-Term Care Insurance

All in all, understanding how health care and long-term care insurance premiums fit into your tax strategy is essential. By staying informed about eligibility criteria, deduction limits, and special provisions for self-employed individuals, you can significantly reduce your taxable income while securing necessary coverage.

For personalized guidance on choosing the right coverage and understanding available tax advantages, contact Lavine LTC today! Our expert team is here to help you navigate your Washington long-term care insurance effectively.