The benefits of tax-qualified long term care insurance policies are generally received tax-free by the policyholder.
For owners of Subchapter C Corporations the tax benefits of long term care insurance policies are exceptional.
Long Term Care Insurance Tax Deductions for Individuals
Tax-qualified policies are considered medical expenses. For an individual who itemizes income tax deductions, long-term care insurance premiums are tax deductible to the extent the premiums exceed 10 % of an individual's adjusted gross income (AGI).
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)).
The amount of the insurance premium treated as a medical expense is limited to the age-based numbers in the table below.
A self employed individual may deduct 100% of his/her premium up to the 2014 age-based eligible premium amounts listed below.
Age 40 and below: $370
Age 41-50 $700
Age 51-60 $1400
Age 61-70 $3720
Age 71 and over $4660
Tax Deductions for Owners of Partnerships, Subchapter S Corporations, and LLCs
Partners of a Partnership, members of an LLC, or shareholders of greater than 2% of a Subchapter S Corporation are taxed as self-employed individuals. The entity pays the long term care insurance premium. The partner, member, shareholder includes the premium in its AGI. The partner, member, shareholder may deduct the age-based eligible amount on its tax return. It is not necessary to meet the 10 % AGI threshold.
Tax Deductions for Owners of Subchapter C Corporations
When a C Corporation purchases long term care insurance on behalf of any of its employees, spouses or dependents, the corporation is eligible to take a 100% tax deduction as a business expense on the total of the premiums paid .
The long term care insurance premium tax deduction is not subject to the age-based limitations in the table above.
The employer may even discriminate and be selective on the class of employees it wishes to elect to cover with long term care insurance benefits.
One important note: Premiums for alternative hybrid long term care/life insurance policies such as Lincoln Moneyguard are not eligible for tax deductions.