What is the credit?

The Minnesota long-term care insurance credit offsets the cost of long-term care insurance premiums by providing a credit against state income tax liability.  The maximum Minnesota credit is equal to the lesser of $100 or 25 percent of the amount paid for each beneficiary.  The maximum total credit is $200 annually on a joint return or $100 for individual filers.

This credit was enacted in 1997 and took effect in tax year 1999.

What is the rationale for this tax credit?

The Minnesota long-term care tax credit provides an incentive for Minnesotans to purchase long-term care insurance coverage.  If more Minnesota residents purchase long-term care insurance, there may be a decrease in the cost to the state in providing for the long-term care of residents who are unable to afford long-term care services.

Is the credit refundable?

The Minnesota credit is a nonrefundable credit and may be used only to offset tax liability.  If an individual qualifies for a credit that is greater than her or his tax liability, the excess will not be paid as a refund.

Who is eligible for the credit?

A Minnesota taxpayer who purchases insurance to provide long-term care coverage, such as nursing home or home care coverage, for him or herself or spouse is eligible for the credit.  To qualify for the credit, the long-term care policy must:

·         qualify for the federal itemized deduction for medical expenses, disregarding the 7.5-percent income test; and

·         have a lifetime long-term care benefit limit of $100,000 or more.

How is the credit calculated?

The Minnesota credit equals 25 percent of qualifying long-term care insurance premiums for one beneficiary, up to a maximum of $100 for individuals and up to $200 for married couples filing jointly who both have coverage.  A taxpayer may claim only one policy for each qualified beneficiary.  It is not necessary that the taxpayers filing jointly have separate policies or premiums.  The amount of premiums used to calculate the credit must be reduced by any premiums claimed as a medical expense deduction on the taxpayer’s federal return.

Filers claim the credit on their Minnesota income tax return using Schedule M1LTI.

How many Minnesotans claim the credit?

For tax year 2007, 61,962 Minnesota returns claimed the credit.  These claims represent about 2 percent of all state returns filed by Minnesotans.

How much is paid out in credits?

In tax year 2007, Minnesotans claimed $8.54 million of long-term care insurance credits.  The average long-term care tax credit was $138 in tax year 2007.  The average credit exceeds the maximum credit of $100 per qualified beneficiary because married couples filing joint returns may claim the maximum credit for both spouses (up to a total of $200).

How does Minnesota compare with other states?

This table includes all states that offered a long-term care insurance tax credit in 2007, but not those states that offer a long-term care insurance tax deduction.  Data on number of claimants and cost by state is for 2007.  In addition to the states listed, Louisiana has enacted but not funded a 10 percent credit, and Maine provides a credit to employers who provide coverage to employees.  North Dakota’s credit will be reduced to $250 in tax year 2009, when the state’s long form is eliminated and the credit is made available to all filers.