Individuals and self-employed business owners that buy long term care insurance will benefit from higher tax deductibility limits in 2013.
The Internal Revenue Service has agreed to increase the LTC insurance age-based tax deductions by approximately three percent over the 2012 limits.
In offering tax deductions for the purchase of long term care insurance the Federal Government is clearly trying to encourage American citizens to plan for its long term care needs.
The tax deductions are especially significant for business owners and self-employed individuals. In many instances, the long term care insurance costs for a business owner of self-employed individual will be 100% tax deductible.
2013 Long Term Care Insurance Tax Deductibility Limits
Age of Insured 2013 Eligible Premium to Deduct
Ages 40 or Less $360
Ages 41-50 $680
Ages 51-60 $1360
Ages 61-70 $3640
Ages over 70 $4550
The IRS applies the tax-deductibility of the age-based limits above differently according to whether the purchaser of long term care insurance is an individual, self-employed, or a business owner.
Individual Purchase of Long Term Care Insurance
Tax-Qualified LTCI premiums are considered medical expenses. For an individual who itemizes income tax deductions, medical expenses are deductible to the extent they exceed 10% of the invidual's Adjusted Gross Income (AGI). The amount of the long term care insurance premium treated as a medical expense is limited to the age-based numbers above.
Exception: The deduction threshold is 7.5% of AGI for any year between 2013 to 2016 that you are 65 or older. (IRC §213(a)).
Self-Employed Purchase of Long Term Care Insurance
A self-employed individual can deduct 100% of his/her out-of-pocket long term care insurance premiums up to the age-based limits in the table above. The deductible amount includes eligible premiums paid for spouses and dependents. For self-employed individuals, it is not necessary to meet a 7.5% adjusted gross income threshold to take this deduction.
Partnership, Limited Liability Corporation (LLC), Sub-Chapter S Corporation Purchase of Long Term Care Insurance
Partners, Members of an LLC, and greater than 2% shareholders of a Sub-Chapter S Corporation are taxed as self-employed individuals. The entity pays the long term care insurance premium. The partner, member, shareholder must include the premium in its adjusted gross income, but may deduct up to 100% of the eligible age-based premium amount in the table above.
Sub-Chapter C Corporation Purchase of Long Term Care Insurance
When a business purchases a tax-qualified long term care insurance policy on behalf of any of its employees, and their spouses or dependents, the corporation is entitled to take a 100% deduction as a business expense on the total premiums paid. The deduction is NOT limited to the age-based Eligible Premium amounts listed in the table above.
The purchase of a tax qualified long term care insurance policy is not subject to IRC non-discrimination rules. Therefore, an employer may be selective in the classification of employees it elects to cover (for example, a select group of officers or highly compensated key employees).
Business Owner Discounts for a Multi-Life Purchase of Long Term Care Insurance
Business owners are not only eligible for significant tax deductions through the purchase of long term care insurance, but also may be eligible for a multi-life discount on its long term care insurance premium as well as streamlined health underwriting for its employee-applicants.
To learn more about the tax-benefits of long term care insurance policies and to receive free long term care insurance quotes please contact LTC Partner toll-free at 1-800-891-5824. Or complete our long term care insurance quote request form. We look forward to helping you explore your options.
Jack Lenenberg, J.D.