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Research Report

Federal and State Income Tax Incentives for Private Long-Term Care Insurance

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To help make long-term care insurance more affordable, both federal and state governments provide tax subsidies for private long-term care insurance.  This PPI research report describes federal and state tax subsidies for long-term care insurance, their value to taxpayers (by age and income), and where possible, their cost to federal and state governments.  

The report finds that most policyholders of long-term care insurance did not receive tax subsidies from the federal itemized medical deduction.  Policyholders who did benefit tend to be older and affluent.  Moreover, the deduction favors higher-income policyholders because of higher tax rates and older policyholders because of deduction limits that vary by age.

Conversely, many policyholders qualify for state tax incentives for long-term care insurance, but these incentives are usually too small because of low tax rates.  A handful of states offer nonrefundable tax credits that could reduce long-term insurance costs by as much as 25 percent.  However, the value of these credits is generally limited by dollar caps, and insufficient taxpayer liability may prevent policyholders from receiving the maximum possible credit.

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