Tax Benefits for Long-term Care Insurance: What You Qualify For

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Duane Lipham

CLTC
Duane Lipham is a Certified Long-Term Care (CLTC) consultant who writes extensively on long-term...read more

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Financing Long Term Care

Tax Benefits for Long-term Care Insurance: What You Qualify For

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If affordability is one of the concerns keeping you from investing in a LTCI policy, consider the tax benefits that go along with LTCI.

What Congress isn’t Doing to Help

It would be wonderful to be able to say that Congress has allowed all LTCI policyholders to deduct the full premium on their taxes. Unfortunately, our lawmakers have not yet enacted such legislation. As is often the case, they are waiting until the system is almost broke before they will do anything like that. And with the approaching flood of baby boomers quickly becoming seniors, it doesn’t take much to realize that we have a train heading off the tracks at full speed.

Tax Benefits You Can Reap Now

However, despite the impending train wreck, there are some tax benefits that have been approved thus far. If you are considering the purchase of LTCI you should know about them.

Currently, most of the tax deduction benefits go to employers and the self-employed. If you don’t fall into that category, Congress requires you to itemize your LTCI policy premiums along with all other health expenses during the year. Anything over 7.5% of your adjusted gross income can be used as a deduction. If you have a health savings account (also known as an HSA medical plan), however, you may be able to deduct more even if you are an employee or retired person.

If you are a sole proprietor, a partner, or own an S corporation or LLC—even if it is just a small business—you can eliminate that 7.5% threshold and instead deduct premiums up to a certain maximum that increases with age. The tax schedule that lists this table for qualified deductions is available for download on my Web site. If you would like to learn more about the specific deductions that may be available, you can find it at http://www.duanelipham.com/tax_summary.pdf.

If you own a C corporation, you are fortunate enough to be able to declare the entire premium as tax deductible.

What This Means in Real World Dollars

The amount of money you will save depends to a large degree on your tax bracket. Many self-employed folks in the 30% tax bracket who use the tax schedule mentioned above may be able to save 20% or more of their LTCI premiums in tax benefits. For those who can deduct the entire premium, even greater savings can be realized.

Of course, it is wise to consult your accountant or tax attorney to be sure of the tax benefits that may apply to you specifically. The tax benefits surrounding LTCI can save you money in the long run, and we all know what the health benefits can save: in some cases, your life.

Until next time...Duane


Duane Lipham is a Certified Long-Term Care (CLTC) consultant. You can get more free information, news and articles regarding long-term care and aging at The Long Term Care Consumer Guide Web site and The Long Term Care Review Blog.

Posted in Financing Long Term Care: Duane Lipham, Planning for Long Term Care

Comments (5)

COMMENTS
5 Responses to “Tax Benefits for Long-term Care Insurance: What You Qualify For”

devon Says:

Duane, thanks for pointing out how today’s policymakers are thinking so short-term. If people don’t purchase LTCI then who will pay!? The government…the Medicare system that will be bankrupt in a few decades?!
Duane Lipham Says:

Thanks for the comment Devon. Many people in the LTCI field believe that the one thing that could increase LTCI sales and encourage more people to take responsibility for their own possible need for long-term care is allowing policyholders to deduct the entire LTCI premium from their taxes as only some C corporations are currently allowed to do. This would result in considerable savings for the taxpayer.

Of course, Congress is concerned with the loss of tax revenues that this kind of allowance would produce. However, the half-hearted tax reduction measures that have been introduced so far have just not been very effective as an incentive to buy LTCI for the average person. There will come a point in the near future when the baby boomers start to retire in large numbers though, and the cost of government subsidized long-term care through state Medicaid programs will cost far more than the lost tax revenues from the above-mentioned incentives. Let’s hope that our lawmakers wake up to this issue soon.
Doug Eaton Says:

So there are no discrimination rules involved when a C Corp pays for long term care insurance on behalf of a shareholder/executive? If not, what’s to keep the shareholders/executives from shutting out the little people on this benefit? If the payments are tax deductible to the corporation, and not taxable to the shareholder/executive, it seems to good to be true.
Duane Lipham Says:

I am not a tax expert, and you chould consult with an appropriate attorney, accountant or tax professional before making any decisions with regard to LTCI.

However, here is a quote from John Hancock’s Tax Guide for 2005 that should help provide some clarity on your question: “When a Business purchases a TQ John Hancock LTC insurance policy on behalf of any of its employees, the employee’s spouse or dependents, as part of an accident and health employee benefit plan, the corporation is entitled to a full deduction as a business expense on the entire premiums paid. [IRC 162(a)]. The deduction is not limited to the “eligible premium” component. Moreover, the entire amount paid by the Business is excluded from the employee’s gross income, even if the premium exceeds the eligible premium. [IRC 106, 7702B, 104(a)(3)]. This exclusion applies to shareholder/employees in a subchapter C Corporation and to shareholder/employees in a Subchapter S Corporation who own 2% or less of the corporation.
The purchase of a tax-qualified long term care insurance policy is not subject to any nondiscrimination rules, thus allowing an employer to be selective in the classification of employees it elects to cover (e.g., a select group of officers).”

I hope that helps.
Carol Marak Says:

This is good information for us boomers and all of aging America. We’re not prepared.. like our parents. We await a senior event to take action. My parents did and it was too late. The adult children are left holding the bag.

Get prepared! That’s my mantra, especially after being a family caregiver - it’ll give you peace of mind.

Thank you,

Carol Marak