Employer-Paid LTC Insurance: Significant Tax Advantages for Employers and Employees
How it works:
When an employer pays for LTC insurance premiums under an employee accident or health plan:
- The business will be able to deduct 100% of the premiums paid
- The employee will be able to exclude the premiums from his/her gross income(1)
- The benefits received from a tax-qualified LTC insurance policy are not included in gross income(2)
The plan may also include the employee’s spouse and dependents. Participation in a LTC insurance employee accident or health plan may be discriminatory.
Business-Paid LTC Insurance: Significant Tax Advantages for Self-Employed Individuals
How it works for self employed individuals:
- The business will be able to deduct 100% of the premiums paid
- The individual may be able to deduct 100% of the eligible premium(3) when calculating his/her adjusted gross income4 without having to meet the 7.5% threshold
- The benefits received from a tax-qualified LTC insurance policy are not included in gross income(2)
Individuals who can benefit are:
- Self-employed
- Sole proprietors
- General partners in a partnership
- Members of a limited liability company (LLC) taxed as a partnership
- A more than 2% shareholder employee of an S Corporation
The plan may also include the employee’s spouse and dependents. Participation in a LTC insurance employee accident or health plan may be discriminatory.
- A more than 2% shareholder employee, their spouse, and dependents are treated as self-employed and can take a 100% self-employed health insurance deduction for the eligible premium for that year (IRC Section 213(d)(10).
- Per diem or indemnity benefits are not included in income, except those amounts that exceed the greater of total qualified LTC expenses, or $260 per day in 2007.
- Eligible premium limitations for LTC insurance premiums are under IRC Section 213(d)(10) and are adjusted annually.
- Earned income must be equal to, or in excess of, the LTC insurance premiums in order to take the self-employed deduction.