Long-term care is a huge financial burden faced by millions of seniors. In fact, there's a 70% chance that today's 65 year olds will need long-term care services sometime in the remainder of their lifetime -- and 1 in 5 will need them for more than five years.
Some of this care takes place in nursing homes, but much of it happens in the home. In fact, 65% of seniors get some type of in-house help, and those who do require assistance for an average of two years. While it can be cheaper and more pleasant for older Americans to remain at home, it can also impose a major burden on caregivers.
Presidential candidate Joe Biden recognizes this and has put forth a plan he claims will "provide tax relief to help solve the long-term care challenge." Here's what that would look like.
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Biden wants to provide tax benefits to help defray the cost of care
Biden has two different proposals to address different aspects of the long-term care challenge. The first is a tax credit for informal caregivers, which he notes is based on legislation supported by the AARP. The plan would offer up to a $5,000 tax credit to family caregivers. They'd be able to receive a credit for a portion of documented caregiving expenses if a healthcare practitioner certifies they're meeting physical or cognitive needs of the person they're caring for.
With a recent Nationwide survey revealing that caregivers spend 26% of their monthly budgets on costs associated with helping loved ones, the credit could defray some of these outsize costs -- especially as tax credits are more valuable than deductions because they reduce tax due on a dollar-for-dollar basis. A caregiver who qualifies for the full deduction and who owed $6,000 in taxes, for example, would owe just $1,000 under Biden's plan.
Of course, family caregivers can only provide so much assistance, so Biden's plan also includes a component incentivizing the purchase of long-term care insurance. This type of insurance can cover the costs of nursing home care, and Biden would make purchasing it more affordable by making tax benefits more generous for those who use retirement savings to pay premiums.
Biden hasn't indicated exactly what steps he'd take in expanding the tax benefits associated with the purchase of long-term care coverage. Currently, premiums are deductible only if you itemize on your taxes, and there are certain other limitations, as well. Past proposals to modify the rules have involved making the deduction for premiums an "above the line" deduction, which would mean you don't have to itemize to claim it.
Will Biden's plan to help older Americans come to fruition?
No one can predict if Joe Biden will become the next president. And even if he's elected, there's no guarantee he'll be able to make either of the changes he's proposed in his plan.
You can't necessarily count on new tax breaks, so it's important you prepare for long-term care regardless of whether this financial help arrives. This may mean purchasing insurance to cover it, even if you can't claim a deduction for premiums, or you may decide to earmark some of your retirement savings for nursing home or home care in case you or your spouse need it.
