This bill amends Maryland’s income tax credit for long‑term care (LTC) insurance premiums by narrowing the pool of eligible policies and lowering the maximum credit available per insured policy. It also adjusts the statute that previously excluded older contracts from the credit and updates the law’s operative dates.
Professionals tracking tax incentives, LTC insurers, and state budget analysts should note the change in who can claim and how much can be claimed: the measure retargets the credit and alters the conditions that govern which policies are treated as new or grandfathered under existing law.
At a Glance
What It Does
The bill ties eligible premiums to the federal definition in IRC §213(d)(10) and requires the insured to meet a residency and minimum‑age test. It lets a taxpayer claim a credit equal to the eligible premiums paid, subject to a per‑insured dollar cap for tax years beginning after 2026, a nonrefundable overall tax limit, and a prohibition against multiple taxpayers claiming the same insured in the same year.
Who It Affects
Individual Maryland taxpayers who pay LTC insurance premiums for themselves or for close family members (spouse, parent, stepparent, child, stepchild), insurance carriers and agents who sell and document qualifying policies, and state fiscal managers tracking revenue and potential Medicaid savings.
Why It Matters
The bill narrows and retargets an existing incentive: smaller, age‑restricted credits change the economics for prospective policy buyers and could alter demand patterns in the LTC insurance market while delivering immediate state budgetary savings but creating new compliance questions for documentation and eligibility verification.
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What This Bill Actually Does
The bill makes four practical changes that matter for compliance and market behavior. First, it imports the federal definition of eligible long‑term care premiums (the language of IRC §213(d)(10)) and then adds two eligibility gates: the insured must be a Maryland resident and must meet a minimum age requirement.
That means whether a premium qualifies will depend first on whether the contract satisfies the federal criteria and second on the insured’s residency and age on the policy — not just on how the policy is marketed.
Second, the credit remains structured as a dollar‑for‑dollar (100%) credit against state income tax for eligible premiums a taxpayer actually pays, but the bill imposes a per‑insured cap for applicable taxable years and confirms the credit is constrained by the taxpayer’s State income tax liability (i.e., it is nonrefundable) and cannot be carried forward. Practically, a taxpayer who pays premiums for multiple insured individuals faces the cap on a per‑insured basis, and the full benefit depends on having enough state tax liability to absorb the credit.Third, the bill reshapes the statute’s grandfathering/exclusion mechanics for older policies.
Instead of a broad, single trigger that barred credit for people who had coverage before a long‑past date, the amended text links the exclusion to a pair of conditions (a prior coverage date and prior claims history), so that only insureds who both possessed pre‑cutoff coverage and already had the credit claimed for them in earlier taxable years are barred. That creates a narrower exclusion class but requires administrators and taxpayers to verify not just the policy start date but whether a credit was previously claimed for that insured in prior years.Finally, the bill keeps the existing annual Comptroller reporting requirement that tracks how many taxpayers use the credit and any Medicaid savings tied to increased private LTC coverage, and it sets an effective date that shifts the substantive application to taxable years beginning after December 31, 2026.
That timing means transactions and documentation done in 2026 will determine the availability and treatment of the credit for 2027 filing and beyond.
The Five Things You Need to Know
The credit equals 100% of eligible LTC insurance premiums as defined by IRC §213(d)(10), but the state treats it as a nonrefundable credit limited by the taxpayer’s State income tax liability.
For taxable years beginning after December 31, 2026, the statute caps the credit at $250 per insured individual for whom the taxpayer pays premiums.
A taxpayer may claim the credit for premiums paid for the taxpayer or for specified family members: spouse, parent, stepparent, child, or stepchild.
The law prohibits more than one taxpayer from claiming the credit for the same insured individual in the same taxable year, and it bars carryforward of unused credit amounts.
The Comptroller must continue to issue an annual report that includes the number of claimants, amounts claimed, and estimated Medicaid savings tied to the credit.
Section-by-Section Breakdown
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Definition of eligible long‑term care premiums
This section adopts the federal standard in IRC §213(d)(10) as the baseline definition, then layers two state requirements: the insured must be a Maryland resident and must be at least 45 years old. For practitioners that means you must check both federal contract qualifications and state residency/age before treating a premium as eligible for the credit; agents and payers should capture proof of residency and date of birth in their records.
Who may claim the credit
The bill specifies the taxpayer who actually pays the premiums may claim the credit for premiums covering the taxpayer or certain family members. The practical import is that payments made by an individual on behalf of another permit that payer to claim the credit, subject to the per‑insured cap and the rule that only one taxpayer may claim for the same insured in the same year. Payroll withholding and employer‑paid premiums remain outside the bill’s immediate language and will require mapping to the taxpayer‑payer relationship in each case.
Dollar cap, exclusivity, and prior‑coverage rule
The statutory cap is restated as a per‑insured maximum for applicable tax years, set at a lower dollar amount for policies tied to the post‑2026 tax period. The section also prevents duplicate claims for the same insured in a taxable year and rewrites the prior‑coverage exclusion into a conjunctive test: an insured is excluded only if they had earlier coverage before the new cutoff date and a credit was already claimed for them in a prior taxable year that began before that cutoff. That change narrows the set of excluded insureds but increases the documentation burden because administrators must verify both policy start dates and historical credit claims.
Interaction with State tax liability and carryover
The bill keeps the existing limitation that total credits cannot exceed State income tax liability (calculated before applying certain credits) and reiterates that unused credit amounts may not be carried into future years. From an accounting perspective, taxpayers with low or no State tax liability will not receive the credit’s cash value, and tax practitioners need to model the credit as a nonrefundable item for planning purposes.
Comptroller reporting and applicability
The annual reporting obligation remains: the Comptroller must report the number of claimants, amounts claimed, and Medicaid savings attributable to the credit. The act takes effect July 1, 2026, and governs taxable years starting after December 31, 2026, so the first full tax year under the revised regime will be 2027 — a detail that affects policy issuance timing, marketing, and taxpayer planning.
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Who Benefits
- Maryland residents aged 45+ who purchase new qualifying LTC policies and have sufficient State income tax liability — they can reduce their state tax bill dollar‑for‑dollar for eligible premiums up to the statutory cap.
- Family members who are covered by a taxpayer’s payments (spouse, parent, stepparent, child, stepchild) — the bill lets a paying relative capture the credit on behalf of those insureds if documentation supports eligibility.
- Tax preparers and financial planners — the narrower, age‑based targeting and per‑insured cap create billable advisory opportunities to optimize timing and documentation for clients considering LTC coverage.
- Insurance agents and carriers who focus on the 45+ market — clearer age targeting may permit more focused marketing and product positioning for prospective buyers who stand to benefit from the credit.
Who Bears the Cost
- Maryland’s General Fund and budget planners — smaller per‑policy credits and tightened eligibility are likely designed to reduce fiscal exposure, but the state forgoes some administrative complexity and must track actual revenue savings versus projected Medicaid offsets.
- Taxpayers who previously relied on a larger credit — individuals who expected the prior, higher benefit may face reduced incentives to buy or maintain LTC coverage and could see a lower tax benefit than under the prior statutory cap.
- Comptroller’s office and tax administrators — the amended grandfathering test and age/residency verification increase the need to verify historical claims and policy start dates, adding administrative workload and potential for disputes.
- Insurers and agents — they may need to enhance recordkeeping, supply more detailed documentation to purchasers, and clarify how premium payments should be recorded when third parties pay premiums on behalf of insureds.
Key Issues
The Core Tension
The bill balances two competing objectives: reducing state fiscal exposure by tightening and shrinking a tax incentive, and encouraging private long‑term care coverage to relieve future Medicaid pressure; the narrower, age‑restricted, lower‑cap credit reduces immediate costs but also weakens the incentive that would boost private coverage, leaving policymakers to choose between tighter budgets and broader long‑term care market participation.
Two practical tensions stand out. First, the interplay between the federal definition referenced in the statute and the state’s new residency and age gates will generate verification burdens.
Federal contract qualifications focus on contract features; Maryland’s addition of residency and an age floor means insurers and taxpayers must collect proof of state residency and birthdates and maintain records to support credit claims. That increases compliance costs and opens the door to audit disputes over what counts as eligible premiums when contracts, premium payers, or residency change mid‑year.
Second, the rewritten exclusion (the conjunctive prior‑coverage/prior‑claim test) narrows who is barred from claiming, but it also creates an evidentiary headache. Tax administrators must check prior taxable‑year filings to determine whether a credit was previously claimed for a given insured and reconcile that with policy start dates.
The practical consequence is more administrative friction and a higher risk of inadvertent disallowances. Coupled with the reduced per‑policy cap and the credit’s nonrefundable nature, this creates distributional effects: higher‑income taxpayers with larger state tax liabilities are better positioned to realize the full credit, while lower‑income taxpayers and those with little state tax liability receive little or no benefit despite paying premiums.
Finally, the budgetary tradeoff is ambiguous. The statute retains the annual reporting requirement to estimate Medicaid savings from private coverage, but those savings depend on behavioral response: a smaller, more narrowly targeted credit may produce smaller increases in private LTC coverage than a larger credit would have, undermining projected Medicaid offsets.
Policymakers and analysts should treat early Comptroller reports as provisional and look for evidence that the credit actually changes purchase behavior among the targeted age cohort.
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