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Income Taxes and Long Term Care Insurance

As you prepare your tax returns this year please remember to consider any premium payments for long term care insurance you have made. On your federal income tax return (form 1040) you may be entitled to a deduction and on your New York State income tax return (form IT-201 or IT-150) a refundable credit.

Federal Income Taxes

The deduction for your federal income tax return is reported on Schedule A, line 1 entitled “medical and dental expenses.” Please note that several tests must be passed for the premium to be deductible:

    • The premium paid must be for a “qualified long-term care contract” which is defined as an insurance contract that provides only coverage of qualified long-term care services. The contract must:
      • Be guaranteed renewable,
      • Not provide for a cash surrender value or other money that can be paid, assigned, pledged, or borrowed,
      • Provide that refunds, other than refunds on the death of the insured or complete surrender or cancellation of the contract, and dividends under the contract must be used only to reduce future premiums or increase future benefits, and
      • Generally not pay or reimburse expenses incurred for services or items that would be reimbursed under Medicare, except where Medicare is a secondary payer, or the contract makes per diem or other periodic payments without regard to expenses.
    • Just like any other qualified medical or dental expense, it is subject to the 7.5% adjusted gross income floor; and
    • The premium you pay for long term care insurance is limited depending upon your age at the end of 2008. See chart below.

    IF the person was, at the end of 2008, age… THEN the most you can deduct is…

    • 40 or under – $310
    • 41-50 – $580
    • 51-60 – $1,150
    • 61-70 – $3,080
    • 71 or older – $3850

    New York State Income Taxes

    Pursuant to New York State Tax Law residents are allowed a credit against their New York State income tax equal to twenty percent (20%) of the premium paid during the taxable year for long-term care insurance. Note that unlike the federal deduction this is a credit and if the amount of the credit for any taxable year shall exceed the taxpayer’s tax for such year, the excess may be carried over to the following year or years and may be deducted from the taxpayer’s tax for such year or years.

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