January 2019 – People are living longer and requiring more costly long-term care services such as home care, assisted living care, and nursing home care. Because the government is concerned about people draining their assets to pay for long-term care and subsequently putting pressure on the Medicaid system, some state governments and Uncle Sam offer tax credits and deductions that can reduce your premiums on a private qualified long-term care insurance policy. Here are the rules for 2019:

New York State residents receive a 20% income tax credit for qualified long-term care premiums. Thus, if your premium is $3,000, NYS will give you and your spouse a $600 income tax credit. Other states also offer incentives.

As a business owner who is a sole proprietor, LLC, or partnership, and greater than 2% shareholder of an S-Corp, you can deduct eligible premium amounts for you and your spouse on your Federal Income Tax Return. The amount of deductible premium is based on your age:

2019 Eligible LTC Premium Amounts

  • 40 or younger:         Up to $420 of paid premium is deductible
  • 41 – 50:                       $790
  • 51 – 60:                       $1,580
  • 61 – 70:                       $4,220
  • 71+                              $5,270

Example: Let’s take the case of a married couple in their early 50s who reside in New York State. One spouse is self-employed and a sole-proprietor. The premium for both of their qualified long-term care policies is $6,500 and their federal income tax rate is 32%.

NYS Credit:

  • 20% of $6,500 = $1,300

Federal Tax Deduction:

  • Eligible Premium is (2 x $1,580) = $3,160
  • 32% x $3,160 = $1,011

Thus, this couple could indirectly reduce its premiums by *$2,311, more than 35%.

($1,300 NYS Credit + $1,011 Federal Deduction).

For more information, please contact Aaron D. Schindler CFP® at aschindler@wagroupllc.com.

*Sources for income tax credit and deductions are the New York State Department of Finance and IRS. The above calculations are for illustration only. The 10% AGI limitation normally applicable to healthcare related deductions, including long-term care insurance premiums, does not apply to the special deduction allowed to the business owners discussed above. Neither Park Avenue Securities, Guardian, nor their representatives render legal or tax advice.  Please consult with your attorney, accountant, and/or tax advisor for advice concerning your particular circumstances.