kess sidneyLong-term care is different from medical treatment designed to cure a condition or illness. Long-term care is meant to address the needs of an individual who, because of a chronic condition, accident or other trauma, or illness, requires assistance with basic self-care tasks (called activities of daily living, or ADLs, such as dressing and bathing) or other necessary assistance (called instrumental activities of daily living, or IADLs, such as cooking and managing finances). Here are the tax issues related to long-term care.

Long-Term Care Insurance

Those who cannot easily afford to pay for long-term care out of their own resources may want to consider buying long-term care insurance. Generally, this type of coverage provides a fixed daily amount when the insured needs long-term care. The coverage may run for a set term (e.g., three years) or for the life of the insured.

For federal income tax purposes, premiums for long-term care insurance are treated as deductible medical expenses up to set dollar limits (Code Sec. 213(d)(10)). For 2017, the limits are (Rev. Proc. 2016-55, IRB 2016-45, 707):

• Age 40 and younger: $410

• Over age 40 but not over age 50: $770

• Over age 50 but not over age 60: $1,530

• Over age 60 but not over age 70: $4,090

• Over age 70: $5,110

These limits are per individual, so if both spouses are 72 years old and each has a policy, the dollar limit on their joint return for 2017 would be $10,220.

The deduction for itemized medical expenses is based on a percentage of adjusted gross income. For 2017, all taxpayers, including those age 65 and older, the threshold is 10% of adjusted gross income (Code Sec. 213(a)). Seniors had a 7.5%-of-AGI threshold that expired in 2016, but proposed legislation failed to extend this special rule.

Retired public safety officers who elect to pay long-term care premiums with tax-free distributions from their qualified retirement plans cannot deduct the premiums. This rule applies where the distributions are paid directly to the insurer but would otherwise be taxable if received by the officers.

Self-employed individuals, who can deduct their health insurance premiums as an adjustment to gross income rather than as an itemized deduction, can treat long-term care premiums in the same way (Code Sec. 162(l)). However, only amounts up to the age-related dollar limits can be deducted (Code Sec. 162(l)(2)(C)).

Combination policies. The Pension Protection Act of 2010 allows life insurance contracts and commercial annuities to be combined with long-term care coverage (hybrid policies), typically with a rider on a whole life insurance policy or an annuity (Code Sec. 7701B(e)). None of the premiums paid for hybrid policies are deductible if they are a charge against the cash surrender value of life insurance contracts or cash value of annuities (Code 7701B(e)(2)).

Employer-provided coverage. Employer payments of long-term care insurance premiums for employees, spouses, dependents, and employees’ children under age 27 by the end of the year are treated as a tax-free fringe benefit (Code Sec. 106). These premium payments, regardless of cost, are not subject to FICA taxes.

HSAs. Funds in health savings accounts (HSAs) can be used to pay for long-term care insurance (IRS Publication 969). These HSA distributions are tax-free to the extent of the age-based limitations discussed earlier.

FSAs. A medical flexible spending account (FSA) cannot be used to pay premiums on long-term care insurance (Code Sec. 125(f)). This is not an eligible expense of an FSA.

State income tax treatment. States may provide different treatment for the payment of long-term care insurance for state income tax purposes. For example, New York residents can claim a tax credit of 20% of the full amount of long-term care premiums. (

Continuing Care Facilities

There is a spectrum of care provided in different living arrangements ranging from independent living, to assisted living, to skilled nursing care, to intensive nursing home care. The cost of living in a nursing home, which is used primarily for medical reasons, is a deductible medical expense to the extent the care is not covered by insurance or government program. No allocation is needed for medical services; all of the cost, including amounts for food and lodging, are deductible.

Those residing in continuing care facilities to receive long-term care assistance may also claim a deduction, but only for a portion of their costs. If this living arrangement is primarily for personal reasons and not primarily for medical care, only costs related to medical care are deductible. This can be based on the percentage of costs allocated to medical care (see e.g., Rev. Rul. 67-185, 1967-1 CB 70; Rev. Rul. 75-302, 1975-2 CB 86; Rev. Rul. 76-481, 1976-2 CB 82, and Baker, 122 TC 143 (2004)).

Proceeds From Long-Term Care Policies

When it is medically determined that the insured needs long-term care, the policy begins to pay off. If the policy pays a per diem amount without regard to the insured’s needs, only the portion up to a set dollar limit is tax-free. For 2017, this amount is $360 per day (Rev. Proc. 2016-55, IRB 2016-45, 707).

However, if the policy has a higher per diem amount, it can be tax-free to the extent of qualified long-term care services for a chronically ill individual. Qualified long-term care services are necessary diagnostic, preventive, therapeutic, curing, treating, mitigating, rehabilitative services, and maintenance and personal care services for a chronically ill individual under a plan of care prescribed by a health care practitioner. A chronically ill individual is a person who, within the previous 12 months, has been certified as being either of the following:

• Unable to perform at least two activities of daily living without substantial assistance for at least 90 days because of a loss of functional capacity. Activities of daily living are eating, toileting, transferring, bathing, dressing, and continence.

• Requires substantial supervision to be protected from threats to health and safety due to severe cognitive impairment.

Proceeds from life insurance policies. A policy may pay accelerated death benefits to the insured. Like proceeds payable on the death of the insured, proceeds payable to an insured who is chronically or terminally ill can be tax-free (Code Sec. 101(g)). Tax-free treatment applies to all proceeds payable on account of a terminal illness (i.e., one expected to result in death within 24 months with some exceptions). Tax-free treatment on account of chronic illness is limited to the amount described earlier for long-term care insurance proceeds.

Tax-free treatment also applies to the sale of a life insurance policy in a viatical settlement (Code Sec. 101(g)(2)).

Out-of-Pocket Costs For Long-Term Care

Even though long-term care is not medical treatment, the costs that are not covered by insurance which are for qualified long-term care services of a chronically ill individual (defined earlier) can be treated as a deductible medical expense (IRS Publication 502).


It has been projected that the number of individuals requiring paid long-term care services in 2050 is expected to be double the number in 2000. ( Understanding how tax rules fit into the financial picture of addressing long-term care can go a long way in paying for this personal need.


Executive Editor Sidney Kess is CPA-attorney, speaker and author of hundreds of tax books. The AICPA established the Sidney Kess Award for Excellence in Continuing Education in his honor, best-known for lecturing to over 700,000 practitioners on tax. Kess is Senior Consultant to Citrin Cooperman & Company and Counsel to Kostelanetz & Fink.

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