Tax Savings ways to pay for Long-Term Care (LTCi)
There are various ways to pay for your Long-Term Care coverage! Having been offering this coverage, for many years, I find it interesting that many states and the federal government help support the idea of people having Long-Term Care Insurance coverage. The following information is my basic understanding of the way’s consumers can purchase coverage with before tax dollars. Please consider consulting your tax advisor to confirm this information.
Executive Carve Out: C Corporations, and Professional Corps that elect C Corp status, can use this method whereby a business owner may favor selected employees for certain benefits and exclude others. For example, certain business owners may be able to create a “class” of employees that are eligible for having their long-term care insurance premiums paid for by the business. This is a valuable way to attract, reward and retain important employees. Spouses and dependents of these “key” employees generally are granted the same tax advantage. This “class” of employee might include only those employees that have been with the business for a specified number of years, or who are in a management role.
- Employer provided LTCi is treated as an accident & health plan
- Premiums are fully deductible for bona fide employees
- Premiums are excluded from employee’s income
- Employee can own the policy
- Benefits, when received, are income tax free
- Total premiums are not subject to FICA
Self–Employed: Can deduct 100% of their out-of-pocket LTCi premiums up to the Eligible Premium amount listed on the table below. The portion of the premium that exceeds the amount on the age-based table below is not deductible as a medical expense. The deductible amount includes eligible premiums paid for spouse and dependents.
Partnership, Limited Liability Company (LLC), Subchapter S Corporation: Partners in a partnership, members of an LLC that is taxed as a partnership, and shareholders/employees of a Subchapter S Corporation who own more than 2% of the Corporation, are taxed as self-employed individuals. They would include the LTCi premium in their Adjusted Gross Income and deduct up to 100% of the age-based amount on the table below.
Health Savings Account (HSA): is a tax advantaged account created for individuals who are covered under a high deductible health plan. Tax Qualified LTCi premiums can be reimbursed through the HSA, tax-free up to the amount on the age-based table below.
Taxpayer’s Age at End of Tax Year 2019 – Deductible Limit:
Age 40 or less
More than 40 but not more than 50
More than 50 but not more than 60
More than 60 but not more than 70
More than 70
1035 Exchange: The Pension Protection Act (PPA) of 2006 – effective 1/1/2010 amended the IRS Code Section 1035 rules to allow non-qualified, tax-deferred annuities or cash value life insurance to be exchanged, on a tax-free basis, for a Tax Qualified LTCi policy. The policies must have the same owner(s) and insured(s). Both principle (basis) and the tax-deferred gains are allowed to be exchanged to fund the LTCi premiums.
Benefits are received tax-free – check out our tab “GA Partnership” tab for valuable information on how LTCi can also protect your retirement assets!
If you are interested in additional information please email or call me and we can discuss!