As noted in the other sections, the tax deductions that are listed in this section only apply to Tax-Qualified policies.
Individual
Premium payments to purchase qualified long-term care insurance by an individual - for yourself, your spouse, and your tax dependents (e.g. your children or dependent parents) are now included as a personal medical expenses if you itemize your taxes [IRC Sec. 213(a)]. Medical expenses in excess of 7 ½% of your adjusted gross income are tax deductible. This means that a portion of your long-term care insurance premium will help you reach the 7 ½% and may even help you to exceed that threshold to receive a tax deduction. Below is a table of the amount of premiums qualifying as medical expenses for the 2008 and 2009 tax years. This is often referred to as the eligible long-term care premium. These increase each year based on the Medical Consumer Price Index.
|
Attained age before the close of the taxable year |
Amount of premium that counts as an allowable medical expense | |
|
2008 |
2009 | |
|
40 and younger |
$ 310 |
$ 320 |
|
41 - 50 |
$ 580 |
$ 600 |
|
51 - 60 |
$1,150 |
$1,190 |
|
61 - 70 |
$3,080 |
$3,180 |
|
Older than 70 |
$3,850 |
$3,980 |
Self-Employed
Qualified long-term care insurance premiums may also be treated like health insurance for the self-employed tax deduction. Self-employed individuals may deduct 100% of the eligible long-term care premium shown above [IRC Sec. 162(1)]. The definition of self-employed includes sole proprietorships, partnerships, "greater than 2% shareholders" of S-corporations, or Limited Liability Corporations.
| Example: Bob, age 61, owns his own consulting firm. His long-term care insurance premium is $1,750 per year. Based on the chart listed under the INDIVIDUAL section, he is eligible to deduct 100% of up to $3,180. Therefore, he can deduct the entire $1,750. |
C-Corporations
Premium payments are fully (100%) deductible as a reasonable and necessary business expense- similar to traditional health and accident insurance premiums [IRC Sec. 213(d)1]. This can apply to the owners, their spouses and dependents, and all employees.
Employer-paid long-term care insurance is excludable from the employee's gross income [IRC Sec. 106(2)] and the benefits received are tax-free.
Partnerships, S-Corporations and Limited Liability Corporations (LLC)
Premium payments purchased for a partner or owner (2%+ shareholder) are subject to the same rules mentioned above for self-employed [IRC Sec. 162(1)].
Premium payments for non-partner/non-owner or less than 2% shareholder-employee are 100% deductible as a reasonable and necessary business expense -- similar to traditional health and accident insurance premiums [IRC Sec. 162(2)].
Employer-paid long-term care insurance is excludable from the employee's gross income and the benefits received are tax-free [IRC Sec. 106(2)].
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