Individual Income Insights: Thinking Long -Term about Health Care


 Examination Room

Americans are living longer. The nation’s median age (“the age where half of the population is younger and the other half older”) rose to 37.9 years in 2016, according to the U.S. Census Bureau. Older adults are also staying in the workforce longer. In 2014, 15 percent of women and 23 percent of men age 65 and over were employed. 

However, the aging population also presents challenges. A 2015 study found that older Americans “averaged out-of-pocket health care expenditures of $5,756, an increase of 37% since 2005 ($4,193).” The study also found that “[o]lder Americans spent 12.9% of their total expenditures on health, as compared with 7.8% among all consumers.” Long-term care insurance is one way that employers and individuals can address future health care needs. Long term health insurance covers long-term services and supports, which includes personal and custodial care, in places such as community organizations, a care facility, or an individual’s home. States are addressing the issue of by offering long-term care insurance credits, deductions, and other incentives.  

Colorado offers residents who purchase a long-term care insurance policy a tax credit. The credit is 25 percent of the premiums paid for long term care insurance during the tax year for the individual and spouse, or $150.00 per policy contract, whichever is less. The Colorado credit is available to residents with federal taxable income of less than $50,000; for two individuals filing a joint return with a federal taxable income of less than $50,000 if claiming the credit for one policy; and less than $100,000 if claiming the credit for two policies. The policy must also meet Colorado's definition of long-term care insurance.  

In Maryland, individuals may be able to take a credit of up to $500 per person when they buy a long-term care insurance contract for themselves or a family member. To qualify for the one-time credit, the insured must be a resident of Maryland and not covered by long-term care insurance before July 1, 2000, among other requirements. 

Employers in Maryland can also claim a tax credit for providing long-term care insurance, if the insurance is part of an employee benefit package. Sole proprietorships, corporations, and pass-through entities are eligible for this credit. The credit equals 5 percent of the employer's cost but is capped at the lesser of $5,000, or $100 per employee. Any unused portion of the credit can be carried forward for five years.  

New Yorkers paying premiums for long-term care insurance that qualifies under state law are eligible for a credit against individual tax or corporate franchise tax. The credit is 20 percent of the premiums paid during the tax year for either buying a long-term care insurance policy or continuing coverage of one. The tax credit is not refundable and may not reduce the tax to less than the minimum tax due, but any excess can be carried forward to subsequent tax years.  

In North Dakota, taxpayers are allowed a credit of up to $250 for individuals ($500 for married couples) if they pay premiums on a partnership-qualified long-term care insurance plan that was purchased on Jan. 1, 2007, or later.  

In North Dakota, “a partnership plan policy is a special type of long-term care insurance policy that: 

  • Meets specific consumer protection and federal income tax law requirements,
  • Is recognized by North Dakota for Medicaid benefit purposes, and
  • Provides the proper inflation protection based on the insured individual's age at time of purchase.”

Wisconsin residents are allowed a subtraction for taxpayers and taxpayers' spouses for the full amount paid for a long-term care insurance policy to the extent the same tax deduction is not taken for federal income tax purposes.  

Continue the discussion on Bloomberg BNA’s State Tax Group on LinkedIn: Are states doing enough to help their residents prepare for future health care needs?      

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