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Paying Long-Term Care (LTC) Insurance Premiums With Business Dollars Is Less Taxing

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.

  1. 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).
  2. 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.
  3. Eligible premium limitations for LTC insurance premiums are under IRC Section 213(d)(10) and are adjusted annually.
  4. Earned income must be equal to, or in excess of, the LTC insurance premiums in order to take the self-employed deduction.
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