Tax Deductible Features of Qualified Long-Term Care Insurance Premiums

  • Originally published January 6, 2014 , last updated April 26, 2017
Tax Deductible Features of Qualified Long-Term Care Insurance Premiums

The Health Insurance Portability and Accountability Act of 1996, which went into effect January 1, 1997 provides for the tax deduction of premiums paid for tax-qualified Long Term Care (LTC) insurance by businesses and individuals, provided certain eligibility requirements are met. Deduction limits for the 2014 tax year range from $370 to $4,660, which means over the lifetime of a policy cumulative tax deductions could add up well into the tens of thousands.

Below we describe the various tax advantages of LTCi, which vary according to the type of entity that purchases the policy.

This document is intended for For Agent Use Only. Persons and business entities should consult their financial advisor or tax consultant for advice pertaining to their specific situation.

Regular C-Corporation

A Regular C-Corporation may deduct the premiums paid for Tax Qualified LTC insurance for any and all employees, their spouses, and other dependents at 100%. There is no imputed income to the employee and all benefits are received tax free to the insured at the time of claim.

There is no requirement that the LTC coverage be provided by the employer on a non discriminatory basis.

Sub-S Corporation

A Sub-S Corporation may deduct the full premium(s) it pays for T on behalf of any and all employees, their spouses and other dependents. For than 2% of the corporation there is no imputed income tax liability nor is the benefits taxable at the time of claim.

For employees owning 2% or more, the corporation, as an entity, may deduct the full amount of premium paid for Tax Qualified LTC insurance, however, that entire amount is considered income to the “owner/employee”. The “owner/employee” may then deduct a portion of that premium/income as a “Self Employed” individual (see below).

Partnerships And Limited Liability Corporations (LLC)

Partnerships and Limited Liability Corporations may also deduct premiums for Tax Qualified LTC insurance paid on behalf of their owners, employees, and their spouses. If, however, the insured is an “owner”, the premium amount paid for those individuals and dependents is included in the owner’s tax liability as imputed income. The owner may then deduct a portion of that premium/income as a “Self Employed” individual (see below). There is no requirement that the LTC Coverage be provided on a non-discriminatory basis.

Self Employed

A self-employed individual may deduct premiums for Qualified LTC insurance along with the premiums for his/her spouse and other dependents. The deduction is limited to the lesser of the actual premium or the amount in Table 2 multiplied by the percentage amount shown in Table 1.

The remaining premium, if any, is then subject to the rules governing the “Individual” tax deductibility of premiums for Tax Qualified LTC insurance.

There is no requirement that the LTC coverage be provided on a non-discriminatory basis.

Individuals

An individual may deduct premiums paid for Qualified LTC insurance along with the premiums for his/her spouse and dependents. The individual must file his/her taxes on the “long form.”

The lesser of the actual premiums paid by the individual for Tax Qualified LTC insurance (minus any portion of the premium which may have already been deducted under the “Self Employed” deduction.) or the amount in Table 2 is considered a medical expense. This is added to all other medical expenses and premiums, for other health/medical insurance, along with any unreimbursed LTC services. The amount exceeding 7.5% of the individuals adjusted gross income (AGI) is deductible.

The older you are the more you can deduct subject to the 7.5 percent threshold in itemized deductions on your 1040. If you are paying for your spouse, each of you are eligible up to the eligible premium limit.

The deduction goes on Schedule B of the 1040 and is subject to the same rules as your other medical expenses and health insurance premium, which means it must exceed the 7.5 percent threshold to deduct your medical and insurance expenses. This also means that if you are filing a standard deduction without itemizing, you do not have the deduction for long-term care insurance.

Health Savings Account: If you have a health savings account then you can reimburse yourself for tax qualified long-term care insurance premiums. This means that the premium up to the eligible premium would be tax free even if the HSA is offered through your employer’s cafeteria plan.

Gift Tax Exclusion: You can give any number of people $13,000 under the gift tax exclusion rule of the internal Revenue Code. You can also purchase LTC insurance policies for other family members and still maintain the annual gift tax exclusion.

This document is intended For Agent Use Only. Persons and business entities should consult their financial advisor or tax consultant for advice pertaining to their specific situation.

2015–2016 Table of Tax Qualified LTCI Premiums

Eligible Premium Limits    
Age 2016 2017
40 or younger $390 $410
41 to 50 $730 $770
50 to 60 $1,460 $1,530
61 to 70 $3,900 $4,090
71 or older $4,870 $5,110
Maximum Indemnity Plan Per Diem Amount $330 for 2014 $340 $340

Source: IRS Revenue Procedure: 2016-55, IRS Revenue Procedure: 2015-53