Premiums paid that exceed 7 1/2% of an insured's AGI are tax-deductible when paid for which plan?

• A. Disability Income Plan
• B. Life Insurance Policy
• C. Qualified Long Term Care Plan
• D. Health Savings Account

Answer: (C)

This question hinges on how medical expenses are treated for tax purposes and which premiums count as medical expenses. You can deduct medical expenses only to the extent that they exceed 7.5% of your adjusted gross income, but premiums paid for a qualified long-term care plan are treated as medical expenses. The portion of those premiums that pushes your total medical expenses above the 7.5% AGI floor can be deducted, subject to the plan’s own limits on how much of the premium qualifies for the deduction.

Other premiums don’t get this treatment in the same way. Disability income plan premiums aren’t generally deductible as medical expenses. Life insurance premiums are not deductible. Health Savings Account contributions are deductible in their own right, but they’re not the same as deducting premiums for a long-term care plan above the AGI floor.

Example: If your AGI is $60,000, the floor is $4,500. If your total medical expenses (including qualified long-term care insurance premiums) total $6,000, you could potentially deduct $1,500 ($6,000 − $4,500), assuming you itemize and other rules are met.