October 2003

New York State Tax Treatment of Long-term Care Insurance Premiums

By Mark H. Levin, CPA, H.J. Behrman & Company LLP

For several years, taxpayers have been able to deduct a limited amount of the premiums paid for long-term care insurance (LTCI), based on age. While this itemized deduction is beneficial to those that itemize on their federal returns, many taxpayers find it more beneficial not to itemize their deductions on their New York State personal income tax returns and to instead take a standard deduction for New York tax purposes. In these cases, the taxpayer would not receive
any New York benefit from their LTCI premiums.

To correct the above problem, New York has, in past years, permitted the amount of the federal deduction for LTCI premiums to be subtracted during the computation of New York adjusted gross income. For taxable years beginning on or after January 1, 2002, this subtraction has been replaced with a credit.
For taxable years beginning on or after January 1, 2002, taxpayers may take a credit on their New York personal income tax returns equal to 10% of the cost of their LTCI premiums. It appears that this new credit provides a greater benefit to all New York State taxpayers than the prior subtraction.

In order for taxpayers to avail themselves of the LTCI credit they must, for New York State tax purposes, remove any amount attributable to LTCI
premiums from their federal itemized deduction.

This credit is available to New York State residents, nonresidents, and part-year residents. Partners and shareholders of S corporations can take the LTCI credit based on the amount paid by the partnership or S corporation. In order for a partnership to pass the LTCI credit through to its partners it must also complete the appropriate portions of Form IT-249, attach it to its Form IT-204, and indicate the partner’s share in Schedule K-1. S corporations will just pass the cost of the long-term care insurance premium through its shareholders on Schedule K-1.

New York State residents will be able to reduce their personal income tax by the full amount of the LTCI credit.

New York State nonresidents and part-year residents may reduce their personal income tax by the amount of the LTCI credit, before the application of the New York AGI apportionment percentage, effectively giving the nonresident or part-year resident a pro rata portion of the LTCI credit.

In order to claim the LTCI credit, taxpayers must complete Form IT-249 and attach it to their Form IT-201 or IT-203.

Mark H. Levin, CPA
H.J. Behrman & Company LLP

Contributing Editors:
Henry Goldwasser, CPA
Weiser LLP

Neil H. Tipograph
Imowitz Koenig & Co., LLP

Warren Weinstock, CPA
Marks Paneth & Shron, LLP

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