subject: The Tax Benefits You Can Reap From Long Term Care Insurance [print this page] The sale of long-term care policies in the past years lowered due to the wobbling economy and the staggering costs of LTC throughout the country. Many individuals are scared of investing on long-term care insurance, they believe that their lifetime savings are put to risk and there's no sense to buying LTCi policies. Otherwise, this misconception that LTC insurance will just drain a person's assets should be erased on everyone's minds; long-term care insurance is a preparation not a risky investment.
The federal government admitted that it can't pay the bill for long term care of all Americans. However, the government provides tax incentives to encourage Americans shoulder their own long-term care needs and promote affordable LTC insurance.
Individual Purchase
Tax-qualified LTCi premiums are treated as medical expenses. If you itemize the tax deductions. the medical expenses can be deducted up to 7.5 percent of your Adjusted Gross Income (AGI). However, the LTCi premium considered as a medical expense is recognized only by the qualified LTCi premiums based on the age and health condition, as set forth under the Internal Revenue Code 213(d). The amount that exceeds the eligible LTCi premium is not counted as medical expense.
Self-Employed
Self-employed individuals can cut down 100% of their LTCi insurance premiums at the amount allowed by the eligible premium. The excess from Eligible Premium is non-deductible for a medical expense. It is not required to attain 7.5 percent Adjusted Gross Income threshold to qualify for this kind of deduction.
The deductible premiums may also apply to premiums paid for spouse and dependents of the self-employed individual. Nevertheless, a self-employed individual is not allowed to deduct LTCi premiums when he/she or his/her dependent is eligible for subsidized LTCi plan, wherein the employer pays all or a portion of the premiums for LTCi.
Employer's Contribution
An employer paying for the entire or a part of LTCi premiums on behalf on an employee may get a deductible as a business expense. Unlike the individual premiums, the deduction for this type does not depend on age limits. Also, the employer's contribution is not counted to the employee's AGI.
A portion of the premium paid by an employer can be applied as balance that an employer can pay for his or her medical expenses. This can go up to the eligible premium amount and will be then used as deduction for medical expenses that exceed 7.5 percent of AGI.
LLC and Subchapter S Corporation
The tax for the members of an LLC are considered as partnership, while shareholders or employees of Subcharter S Corporation, with 2% share of the corporation, are qualified as self-employed individuals.
The partners, members, shareholders or employees incorporate the LTCi premium in their Adjusted Gross Income (AGI), but they may reduce up to $100 percent of the age caps for the eligible premium.
If a shareholder/employee purchases LTCi under his or her name and not the S Corporation, the S Corporation will not be considered as partnership and the shareholder is no longer considered a partner as well. Also, the shareholder is not considered as self-employed and is only allowed to use the eligible LTCi premiums in the itemized deductions, which are subject to the 7.5 percent AGI threshold.
by: Marcia Cross
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