Anytime I write about financial products that are also offered through my practice, I run the risk with this column of taking what some may view as unfair advantage of promoting products I also happen to write. While I think my many years of writing a financial column has dispelled this notion, I am sensitive to this criticism and do try to keep my comments towards topics of financial interest focused on a much broader scale so as to avoid any chance of this. However, I can hardly find any type of information — much less publicity — concerning tax legislation enacted a few years back that could have a significant impact on the ownership of a certain type of health care insurance benefit. What I am referring to is a relatively unknown state tax credit provided to those who pay premiums for long-term care insurance coverage. It is something every tax paying Mississippian should know.
In 2007, the Mississippi Legislature took the bold initiative to implement a tax policy that can encourage the purchase of healthcare protection for taxpayers in their older years. What I am referring to is an income tax credit on certain long-term health insurance premiums signed into law by former Gov. Barbour. This law states that taxpayers can get a tax credit of 25 percent of the premium or $500 of “the premium costs paid during the taxable year for a qualified long-term care insurance policy.” So, first understand as a point of clarification, this is a state tax credit — not federal.
When this legislation was enacted into law, Gov. Barbour stated: “Paying for long-term care for our loved ones can be an enormous financial burden on our families. This is one way we can help curb the costs of care, especially when the length of stay is unknown and options are limited.”
According to information provided from the State Tax Commission, the credit cannot exceed a taxpayer’s tax liability and can’t be forwarded to the next year. But the ramifications of this with your 2012 tax bill potentially provides help as you prepare for taxes due on April 15th.
The enactment of this legislation back in 2007 was passed as “Senate Bill No 2237.” You may want to contact your tax advisor and inquire about this. Additionally, you may want to contact the Mississippi State Tax Commission for further information.
Today, many are still not aware of this valuable tax benefit. What I particularly like is this is a credit off your taxes and not just a deduction. And while state taxes normally are not nearly as large as those owed on the federal side, a credit of any nature is always better than a deduction. Furthermore, it signifies a first step in changing the financial behavior of those who don’t think they will face this type of expense by providing tax incentives attractive enough to encourage one towards insuring the risk.
One key point of clarification is this credit only applies to policies considered “qualified” long-term care coverage. This key point was instituted when Uncle Sam clarified the tax treatment of long-term care back in 1998 as a legitimate health care expense.
Where my concern lies is that since this is a tax benefit provided via state legislation, it is very possible your insurance carrier has not notified you on this credit. Their reasoning is that it’s difficult at best to keep up with the many and varied tax statutes enacted by each of our fifty states.
Through my licensing, I am required by professional ethics to refrain from providing specific tax or legal advice. However, I think the message needs to be communicated about the potential benefit this tax provision can provide. Otherwise, you risk the possibility of paying more taxes than you owe. And who doesn’t want the chance for some tax relief when the opportunity presents itself.
» This Month’s Parting Shot: On the heels of the Super Bowl just concluding, a recent piece in “Financial Planning” provided interesting data concerning the financial fortunes of professional football players today. According to a Sports Illustrated survey conducted in 2009, 78 percent of pro football players were either bankrupt or having severe financial stress within two years of ending their playing careers. This only validates the hard reality that, in many ways, it can be harder to hold on to the money one has made, than through the efforts generated of earning it from the start.