IRS Raises Deductibility Limits for LTC Insurance

2011 limits rise even though Social Security does not

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The IRS announced Tuesday that the deductibility limits for long-term care (LTC) insurance policies purchased in 2011 will be higher than for those purchased in 2010.

According to Jesse Slome, executive director of the American Association for Long-Term Care Insurance (AALTCI), the industry's trade association, the allowable deductions for purchase of LTC insurance have risen steadily each year, but what is interesting about this year’s announcement is that there is no accompanying increase in Social Security limits or payments. “That really is a clear indication that this is something the government takes seriously and sees it as a benefit to encourage more people to plan,” Slome said in an interview.

The new deductible limits under Section 213(d)(10) for eligible long-term care premiums includable in the term “medical care” are as follows:

Attained Age Before Close of Taxable Year

40 or less

More than 40 but not more than 50

More than 50 but not more than 60

More than 60 but not more than 70

More than 70

2011 Limits

$   340

$   640

$1,270

$3,390

$4,240

2010 Limits

$   330

$   620

$1,230

$3,290

$4,110

           
“Tax advantaged long-term care insurance,” Slome explained, “remains one of the few remaining significant tax-savings benefits especially meaningful for small business owners."

In light of a Republican-dominated Congress, he expects to see few changes in the Community Living Assistance Services and Supports (CLASS) Act, the section of the new health care reform legislation that governs LTC insurance.

“The real issue is,” he said, “with all the things that the new Republican Congress has to look at, will they tinker with the CLASS act? I’m betting that they won’t tinker, but that there will be greater scrutiny in terms of evaluating the ultimate premiums when they’re announced.” He pointed out that HHS has “already staffed up, so I doubt they’re going to go in and...wholesale cut [staff.] I think when they announce pricing, people will look at it to make sure their assumptions are not going to burden future generations of taxpayers.”

Slome reiterated that the tax-deductible status of such policies is little known: “Few insurance and financial professionals ever discuss this with their business clients, or make accountants and tax planners aware so that they could discuss it,” he said, adding that AALTCI gets numerous calls from consumers wanting to verify that such policies are indeed deductible. “The fact is that their questions [are ones] that most insurance and financial professionals still can’t answer,” he concluded.

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