Federal Tax Benefits for Long-Term Care

The IRS provides significant tax incentives for long-term care (LTC) expenses, though they are subject to strict eligibility rules and annual caps. These benefits allow taxpayers to offset the high costs of both insurance premiums and actual care services, provided the expenses are considered “qualified.” For 2026, most individuals must itemize their deductions and meet a specific spending threshold to see a reduction in their tax liability.

I. The 7.5% Adjusted Gross Income Threshold To claim most medical deductions, including those for long-term care, your total unreimbursed medical expenses must exceed 7.5% of your Adjusted Gross Income (AGI). Only the portion of expenses that surpasses this percentage is actually deductible. For example, if a retiree has an AGI of $60,000, the first $4,500 of their medical spending is not deductible; any qualified spending above that amount can be subtracted from their taxable income.

II. 2026 Age-Based Premium Limits The IRS limits the amount of “tax-qualified” long-term care insurance premiums that can be included as a medical expense each year based on the age of the insured at the end of the tax year. For 2026, these limits have been adjusted for inflation: individuals age 40 or younger can deduct up to $500; ages 41 to 50 can deduct $930; ages 51 to 60 can deduct $1,860; ages 61 to 70 can deduct $4,960; and those older than 70 can deduct up to $6,200. These caps apply to each insured person, so a married couple filing jointly where both are over 70 could potentially include up to $12,400 in premiums as part of their total medical expenses.

III. Deductibility of Actual Care Services The costs of home health care, assisted living, and nursing home services are also deductible if they are primarily for medical care and the resident is certified as “chronically ill” by a licensed healthcare professional. A person is considered chronically ill if they are unable to perform at least two activities of daily living (ADLs) for 90 days or if they require constant supervision due to severe cognitive impairment. If the primary reason for a facility stay is medical, the entire bill—including meals and lodging—is deductible; if the stay is for personal reasons, only the specific charges for medical care qualify.

IV. Advantages for Business Owners and the Self-Employed Self-employed individuals and business owners enjoy more generous tax treatment for long-term care insurance premiums than standard W-2 employees. In 2026, self-employed taxpayers can generally deduct the age-based limit of their premiums directly from their gross income (an “above-the-line” deduction) without needing to meet the 7.5% AGI threshold. Furthermore, C-corporations that pay for the long-term care insurance of their employees can often deduct the full cost of the premiums as a business expense, and these employer-paid premiums are typically not considered taxable income for the employee.

V. Tax-Free Nature of Policy Benefits While the focus is often on the deduction of costs, the tax treatment of the benefits received is equally important. Benefits paid out from a qualified long-term care insurance policy are generally received 100% tax-free, provided they do not exceed the actual cost of care or the IRS per diem limit. For 2026, the per diem (daily) limit for indemnity or per-diem style policies is $430. This ensures that the funds intended to pay for a senior’s care are not eroded by federal income taxes during the time they are most needed.

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Source: IRS Revenue Procedure 2025-32; Internal Revenue Service – Topic no. 502, Medical and Dental Expenses (irs.gov)