Owners of qualified long-term care policies are eligible for some important federal income tax breaks. Here are the details of two benefits policy holders get from Uncle Sam.

1. Benefit Payments Are Usually Federal Income Tax-Free

In general, benefit payments received under a qualified long-term care policy are free from federal income tax because they’re considered reimbursements for medical expenses under health insurance coverage. This tax-free treatment automatically applies to benefits of up to $360 per day  (for 2018 and 2017) or the equivalent for benefits paid on some other periodic basis (such as weekly or monthly). The $360 cap is adjusted annually for inflation.

Even if the policy pays benefits in excess of the cap, they are still federal-income-tax-free as long as they don’t exceed the insured person’s actual long-term care costs. However, benefits that exceed both the cap and the actual costs are generally taxable.

Note: If you receive long-term care insurance benefit payments during the year, you should expect to get a Form 1099-LTC from the IRS early in the following year. It reports the gross payments made to you. The taxable amount (if any) is calculated on IRS Form 8853, Archer MSAs and Long-Term Care Insurance Contracts. Ignore the part about MSAs unless you have one.

If you have company-paid qualified long-term care insurance coverage through a job, the cost of the coverage is generally a tax-free fringe benefit to you for federal income tax purposes. However, if you pay the premiums with salary dollars via payroll withholding, the premiums are considered part of your taxable salary.

2. Potential Itemized Deductions For Premiums

Because a qualified long-term care policy is considered health insurance for federal income tax purposes, the premiums are treated as medical expenses on Schedule A. However, there are limits. You can only treat the age-based amounts listed below as medical expenses. Don’t forget to count premiums paid for coverage on your spouse, as well as premiums paid for other dependent family members (meaning you pay over half the cost of supporting the person and he or she doesn’t file a joint federal income tax return).

Age on 12/31/17

Maximum Amount
Treated as a Medical Expense
for 2017
Age on  12/31/18 Maximum Amount
Treated as a Medical Expense
for 2018

40 or under

$410 40 or under


41 to 50

770 41 to 50


51 to 60

1,530 51 to 60


61 to 70 4,090 61 to 70


Older than age 70 5,110 Older
 than age 70


Combine these age-based amounts with your other medical expenses, such as health and dental insurance premiums, insurance co-payments, out-of-pocket prescription costs, and any other unreimbursed medical outlays. If the resulting total exceeds 7.5% of your adjusted gross income (AGI) for 2017 and 2018, you can write off the excess as an itemized medical expense deduction on Schedule A. (This percentage rose to 10% for some taxpayers, but thanks to the passage of the Tax Cuts and Jobs Act, it reverts to 7.5% for 2017 and 2018.)

Note: If you pay premiums for a long-term care policy that is not qualified under tax law, the premiums are treated as a nondeductible personal expense.

Example: Let’s say you’re age 63 at the end of 2017 and pay $2,500 during  the year for a “bare bones” qualified long-term care policy. You can treat the entire $2,500 as a medical expense for itemized deduction purposes on your Schedule A, because that amount is less than the $4,160 maximum for 2018. But if you pay $4,200 for a more-generous policy, you can only treat $4,160 as a medical expense. Now let’s say you also pay $5,000 in premiums for a qualified long-term care policy that covers your dependent 82-year-old father. In this case, you can treat an additional $5,000 as a medical expense on your Schedule A. If your total medical expenses, including the age-based long-term care insurance premium amounts, exceed 7.5% of your AGI, you can deduct the difference on Schedule A.

The federal income tax breaks for qualified long-term care insurance are not a reason to buy the coverage. However, they may help lower the effective cost and make it more affordable to obtain adequate coverage.