Long Term Care Insurance Increased Tax Deduction Limits Announced

The Internal Revenue Service (IRS) announced increased deductibility levels for individuals purchasing long term care insurance policies purchased in 2013.  
     

"For taxable years beginning in 2013, the limitations have been increased," explains Jesse Slome, executive director of the American Association for Long-Term Care Insurance (AALTCI), the industry's trade association.  “Tax advantaged long term care insurance remains one of the few remaining significant tax-savings benefits especially meaningful for small business owners."

The deductible limits under Section 213(d)(10) for eligible long-term care premiums includable in the term ‘medical care’ are based on the taxpayers attained age before the close of the taxable year.  For those age 40 or less, the maximum deduction is $360 an increase from the 2012 amount ($350).  The maximum amount that may be deducted by an individual who is more than age 70 is $4,550, an increase from $4,370 in the prior year.

"The federal government and a growing number of states are offering deductions and in some cases even credits to encourage individuals to plan for the eventual need of costly long-term care," Slome explains.

According to the just released IRS Revenue Procedure 2012, the deductible limits range from a low of $360 to as much as $4,550 per individual.  "The deductions are especially meaningful at older ages when it is likely a couple will have lower income and potentially other medical expenses necessary to meet minimum thresholds," Slome explains.  "That said, people must buy long-term care insurance when they can still health qualify.  Tax deductions are a meaningful added plus to the potential of not having to depend on family members or spend your retirement income for care."

     
For calendar year 2013, the per-diem limitation under Section 7702B(d)(4) for periodic payments received under a qualified long-term care insurance contract is $320 (the 2012 limit was $310).
     

Established in 1998, the American Association for Long-Term Care Insurance is the national association focused on creating heighten consumer awareness regarding the importance of planning and serving insurance and financial professionals who provide long-term care financing solutions.  A complete explanation of long term care insurance tax deduction limitsand rules for individuals and business owners can be found on the Association's website.

Increased Tax Deduction Limits For Long-Term Care Insurance

The Internal Revenue Service (IRS) has announced increased deductibility levels for long-term care insurance policies purchased in 2010. "For the first time, the maximum deductible limit for an individual exceeds $4,000," explains Jesse Slome, Executive Director of the American Association for Long-Term Care Insurance , the national trade organization.

"The federal government and an increasing number of states are sending a clear signal that individuals need to plan for long-term care and tax deductibility and tax credits certainly make long-term care insurance more attractive to millions," Slome adds. "It is a positive sign to see limits for long-term care insurance deductibility increase especially when pension contribution limits for 2010 were not increased."

The end of the year provides a double tax-saving incentive for consumers. There is still time to take advantage of tax deductions in 2009 and also benefit from the increased deductible limits next year.

The 2010 deductible limits under Section 213(d)(10) for eligible long-term care premiums includable in the term ‘medical care’ are as follows:
Age 40 or less: $ 330
More than 40 but not more than 50: $ 620
More than 50 but not more than 60: $1,230
More than 60 but not more than 70: $3,290
More than 70: $4,110

A complete explanation of tax deductible rules for individuals and business owners can be found on the Association's website: Click here for 2010 tax deductible limits.

IRS Rules Assisted Living Meals And Lodging Costs May Be Tax Deductible

A private letter from the Internal Revenue Service explains that meals and lodging costs for assisted living may be deducted as medical expenses if the individual is in the facility for qualifying medical reasons. The letter explains the types of conditions that would meet the standards in order to qualify these costs as tax deductible.

For insurance agents and brokers, this is good information to save and share with accountants and tax professionals who may be working with family members with a parent (or parents) residing in an assisted living community.

Here is a copy of the IRS letter dated December 18, 2008

DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE
WASHINGTON, D.C. 20224

Number: INFO 2009-0010
Release Date: 1/2/2008
UIL: 213.00-00
CONEX-149526-08

The Honorable Edward Markey
Member, U.S. House of Representatives
5 High Street, Suite 101
Medford, MA 02155
------------------------------
Dear Congressman Markey:

This letter responds to your inquiry dated December 10, 2008, on behalf of your
constituent (name withheld) who asked about the deductibility of expenses paid
to care for her mother, who is in an assisted care program because she suffers from
Alzheimer’s disease.

As a general rule, taxpayers may not deduct personal, family, or living expenses
(section 262(a) of the Internal Revenue Code (the Code)). However, an exception
allows taxpayers to deduct expenses that they pay for medical care of the taxpayer, the
taxpayer’s spouse, or the taxpayer’s dependent, subject to certain limitations, if the
expenses are not covered by insurance (section 213(a) of the Code). For purposes of
this deduction, medical care expenses include amounts paid for the treatment or
mitigation of a mental illness and amounts paid for qualified long-term care services
(section 213(d)(1) of the Code).

Qualified long-term care services are certain services that a chronically ill individual
requires, and that a licensed health care practitioner prescribes under a plan of care
(section 7702B(c)(1) of the Code). An individual is chronically ill if the individual meets
one of two “triggers.” The first trigger is the inability to perform at least two daily living
activities without substantial assistance from another individual for at least 90 days.
Daily living activities include eating, toileting, transferring, bathing, dressing, and
continence (section 7702B(c)(2)(B) of the Code). The second trigger is a severe
cognitive impairment that requires substantial supervision to protect the individual from
threats to health and safety (section 7702B(c)(2)(A) of the Code).

What level of assistance with daily living activities is required to meet the first of the two triggers—the inability to perform at least two daily living activities without substantial assistance from another individual. In Notice 97-31, 1997-1 C.B. 417, we define “substantial assistance” as either “hands-on assistance” or “standby assistance.”

Hands-on assistance means the physical assistance of another person without which
the individual could not perform the activity. Standby assistance means the presence of
another person within arm’s reach of the individual that is necessary to prevent, by
physical intervention, injury to the individual while the individual is performing the activity
(such as being ready to catch the individual if the individual falls while getting into or out
of the bathtub or shower as part of bathing, or being ready to remove food from the
individual’s throat if the individual chokes while eating).

Notice 97-31 also provides guidance about the second trigger—a severe cognitive
impairment that requires substantial supervision to protect the individual from threats to
health and safety. The notice defines a “severe cognitive impairment” as a loss or
deterioration in intellectual capacity that is comparable to (and includes) Alzheimer’s
disease and similar forms of irreversible dementia, and is measured by clinical evidence
and standardized tests that reliably measure impairment in the individual’s:
Short-term or long-term memory,
Orientation as to people, places or time, and
Deductive or abstract reasoning.

“Substantial supervision” means continual supervision (which may include cuing by
verbal prompting, gestures, or other demonstrations) by another person that is
necessary to protect the severely cognitively impaired individual from threats to his or
her health or safety (such as may result from wandering).

The individual also asked whether meals provided with long-term care services are deductible
medical care expenses. If an individual is in a hospital or another institution because of
a mental illness, the meals and lodging furnished as a necessary incident to medical
care are considered medical care expenses (section 1.213-1(e)(1)(v) of the Income Tax
Regulations (the regulations)). This regulation applies to individuals who must be in the
facility because of a mental illness that makes it unsafe for them to be left alone (section
1.213-1(e)(1)(v)(a) of the regulations).

However, if the principal reason for being in the facility is based on personal or family considerations, rather than the need for medical care, the cost of the meals and lodging is not a medical care expense. Only the cost of the medical care itself would be deductible (section 1.213-1(e)(1)(v)(b) of the regulations). Thus, expenses for meals and lodging that are non-deductible personal expenses at the onset of a mental illness may be deductible medical expenses after the
illness has progressed. For example, expenses for meals and lodging at a minimal-care
assisted living facility are non-deductible personal expenses. However, expenses for
meals and lodging in a constant-care nursing home may be deductible medical care
expenses if the meals and lodging are furnished as a necessary incident to medical
care.

Sincerely,
Kimberly L. Koch
Senior Technician Reviewer, Branch 2
(Income Tax & Accounting)

For more information on long-term care insurance, please visit the Website of the American Association for Long-Term Care Insurance.

Congressional Budget Office Recommends New Savings Program To Fund Purchase Of Long-Term Care Insurance

Congressional Budget Office Recommends Savings Program To Enable Americans To Purchase Long-Term Care Insurance

To aid the incoming 111th Congress and the Obama Administration, the Congressional Budget Office (CBO) has just released a 235-page report outlining 115 budget options for health care reform. The report expands on one the CBO's regular reports to the House and Senate Committees on the Budget. The authors claim the report presents ideas for reducing "and in some cases, increasing" federal spending on health care, altering federal health care programs and making (in again their words) "substantive changes to the nation's health insurance system.

When it comes to the long-term care section according to Jesse Slome, Executive Director of the American Association for Long-Term Care Insurance, most of the changes will increase spending adding costs to an already strained federal program.

One proposal would require workers to contribute a percentage of their pretax wages to an individual account reserved specifically to pay for long-term care insurance. In the Congressional Budget Office’s estimation, a contribution of 1.2 percent of income subject to the Social Security payroll tax would meet the option’s funding requirements. Non-wage earners, such as stay-at-home spouses, would not be covered under this option.

Under the proposed plan, the accounts themselves would be administered by a federal entity, which would invest them in Treasury securities. The money in the account would be the property of the individual and would be part of the individual’s estate if he or she died before turning 65. At age 65, the balance of the account would be required to be used to purchase the most generous long-term care insurance policy available given that balance.

Here is a summary of the other proposals and some preliminary estimated costs:

1. Increase States' Flexibility to Offer Home- and Community-Based Services Through Medicaid State Plan Amendments. This option would increase Medicaid’s spending by an estimated $2.7 billion over the 2010–2014 period and by $8.1 billion over the 2010–2019 period.

2. Make Home and Community-Based Services a Mandatory Benefit Under Medicaid. This option would increase Medicaid spending by approximately $20 billion over the 2010–2014 period and by about $90 billion over the 2010–2019 period. That estimate incorporates a reduction in nursing home spending as a result of a modest decline—compared with current law—in the number of Medicaid beneficiaries who receive care in nursing homes and a subsequent increase in the number of individuals receiving home or community-based services.

3. Increase the Federal Matching Rate for Home and Community-Based Services and Decrease the Federal Matching Rate for Nursing Home Services. This option would increase Medicaid spending by about $8 billion over the 2010–2014 period and by about $13 billion over the 2010–2019 period.

4. Clarify Medicaid's Definition of Permissible Asset Transfers. This option would explicitly define which types of transfers are permissible. Because the rules are ambiguous, states tend to interpret them narrowly. This option would clarify that the following types of transfers are permissible:
Providing financial assistance to a family member for educational expenses;
Assisting a family member with medical expenses;
Assisting a family member facing a financial crisis, including a failing business or family farm;
Assisting an individual who is a caregiver for a family member or person with whom he or she lives; or
Donating funds to a church, religious organization, or charity.
Implementing this change would increase mandatory federal spending by about $2.6 billion over the 2010–2014 period and by $6 billion over the 2010–2019 period.

5. Increase the "Look-Back" Period for Transfers of Assets in Medicaid. This option would further extend that period from 60 months to 84 months for transfers made on or after October 1, 2009. Transfers made prior to that date would be subject to the 60-month look-back period. The look-back period would increase to 84 months over time, with the option generating its first budgetary effects in year six of the 10-year period from 2010 to 2019—that is, after 60 months had passed. Therefore, this change would have no effect on federal spending until 2015; over the period from 2015 through 2019, it would reduce spending by approximately $220 million.

6. Implement Policies That Encourage the Use of Advance Directives. Provided that appropriated funds were available, implementing those activities would increase federal discretionary spending by about $60 million over the 2010–2014 period and by $110 million over the 2010–2019 period. There would be a savings to Medicare of about $30 million over the 2010–2014 period and $100 million over the 2010–2019 period resulting from the portability of advance directives.

Here is the link to access the full report click on this link or paste the following address into your Web browser. The long-term care provisions are contained in Chapter 10 that actually begins on page 193. http://www.cbo.gov/ftpdocs/99xx/doc9925/12-18-HealthOptions.pdf

Long-Term Care Insurance Tax Planning Idea For Business Owners

Long-term care insurance is one of the greatly overlooked tax deductions with special advantaged best suited for small business owners. The American Association for Long-Term Care Insurance maintains helpful information about deductibility levels and rules on it's website. Click here to read more.

But here is a tip summarized from the just published edition of Long-Term Care Insurance Sales Strategies magazine. The idea was shared by David Hillelsohn of the Haslett Management Group.

The firm worked with an employer who desired offering an employer-paid long-term care insurance plan to employees, but only wanted to selectively provide the coverage to those nearing retirement age.

To accomplish this,, the firm created their own eligible classification for the insurance benefit by creating a point system - giving a point for years of service and a point for the employees age. Any employee with 50 or more points was eligible for the employer paid plan.

The use of Executive Carve Out plans for long-term care insurance remains one of the best ways small businesses can use pre-tax dollars to pay for this important benefit. For more information, contact your long-term care insurance professional or click here for no-obligation information.