Tax Benefits and Long Term Care Health Insurance
Under IRS tax code, Long Term Care Health Insurance is treated like medical insurance. There are many ways in which this insurance can be considered.
Individual Benefits
For people who itemize tax deductions, according to the tax code, if medical expenses exceed 7.5 of adjusted gross income, they are deductible. The age of the insured individual is the determining factor in portion of the LTC insurance that is deductible.
| Age of Insured Individual before the end of 2000 | Eligible premium deductible | |
| Age 40 or Younger | $220 | |
| Age 41 – 50 | $410 | |
| Age 51 – 60 | $820 | |
| Age 61 – 70 | $2200 | |
| Age 71 and Older | $2750 | |
A 67 year old male individual owns a tax-deductible LTC policy that has an annual premium of $2600 and his yearly gross adjusted income is $50,000. He has $5000 of medical expenses ($2800 non-insurance expenses plus $2200 eligible portion of LTC insurance premium).
From the table, we can see that the eligible portion of the LTC insurance premium is $2200. 7.5% of his AGI (Adjusted Gross Income) is $3750 (7.5% X $50,000). His allowed deduction for medical expenses will be $1250 ($5000 - $3750).
Gross income does not take into account benefits from a tax-qualified Long Term Care Health Insurance policy. A person who purchases a policy for a parent who is not a dependent is not entitled to a medical expense deduction.
S Corporation or Partnership
When determining adjusted gross income, an individual self-employed five years ago can now deduct 60% of their health insurance premiums. The remaining 40%, like in the above scenario involving an individual is allowable as a medical expense. The Individual chart above is also applicable to the eligible premium allowable for the 60% deduction and the remaining 40%. The coming years will see an increase in the 60% deductible percentage:
| Year | Deductible Percentage |
| 2000-2001 | 60% |
| 2002 | 70% |
| 2003-On | 100% |
C Corporation
A tax-qualified LTC policy is treated similarly to health insurance premiums when purchased by a C Corporation. Those premiums, if they are for the employees or spouse/dependants of employees are fully deductible as business expenses. Though they are deductible, it appears that they are not subject to nondiscrimination rules.
- The premiums are not limited to the eligible premiums described in the previous 2 examples.
- The premiums paid by the corporation are not included in the employee's gross income.
- The benefits, when received, are tax-free.
The above interpretation is for general informational purposes only, and is according to our interpretation of the tax code. Long-Term-Insurance-Care-Center is not intending to present itself as a tax professional, but rather offer our opinion of the tax code as it relates to tax qualified LTC insurance. Visitors are encouraged to consult their tax professional as it relates to their personal situation.
How can I find out more information?
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