Updated Tax Breaks and Incentives for Long Term Care Insurance
Every year the Internal Revenue Service (IRS) updates the amount of long-term care insurance (LTCI) premiums taxpayers can deduct from their income if they have purchased a policy. Below are this year’s amounts. This year’s official LTC Consumer Tax Guide will be updated and located here very soon.
|ELIGIBLE PREMIUM GUIDELINES|
|Age before the close of the taxable year:||2019 LTCI Eligible Premium||2020 LTCI Eligible Premium|
|40 and under||$420||$430|
|51 - 50||$790||$810|
|51 - 60||$1,580||$1,630|
|61 - 70||$4,220||$4,350|
|71 and over||$5,270||$5,430|
Current tax laws allow for the deduction of either the actual premium or the eligible premium paid on a tax qualified long-term care insurance policy.
- Actual premium is the actual amount of premium paid
- Eligible premium is an amount determined annually by the federal government based on the medical care components of the Consumer Price Index and the age of the policyholder
If your combined medical expenses (tax-qualified LTCI and other medical expenses) exceed 10% of your Adjusted Gross Income (AGI), you may be eligible for a deduction. Any portion of LTCI premiums outside of the eligible premiums listed below cannot be includable as a medical expense.
YOUR LTCI BENEFITS ARE INTENDED TO BE TAX-FREE
As long as the benefits you receive from your tax-qualified LTCI policy do not exceed the greater of your qualified long-term care daily expenses or the per-day limitation of $380 (2020 limit), your benefits should be tax-free.
SECTION 125 CAFETERIA PLAN
LTCI is not allowed in a cafeteria plan.
A self-employed individual (or sole-proprietor) can deduct 100% of the owner’s tax-qualified premiums based on the age-based limits explained in the chart above. Additionally, a self-employed business may be able to deduct the premiums paid for their employees as a business expense. It is not necessary for a self-employed individual to meet the threshold of AGI that is required for an individual.
LIMITED LIABILITY COMPANY
The employer-paid portion of LTC premium for employees of an LLC is deductible as a general business expense. The members of an LLC are taxed as self-employed individuals (see above for guidelines). The LTCI premiums that are paid by the corporation are to be included in member’s AGI, but may deduct up to 100% of the age-based Eligible Premium amount listed in the table above.
Sub S corporation members who own more than 2% of the Corporation are taxed as self-employed individuals. The LTC premium must be included in their income and reported on their K-1. The premiums, however, are deductible up to 100% of the age-based Eligible Premium amount listed above and should be included in member’s AGI.
"The information provided in our tax guide is not tax advice and does not guarantee that state benefits will be available. Please speak with your tax consultant to confirm if your state has a tax benefit available."
All tax-qualified premiums paid for by the employer for their employees is entitled to be 100% deducted as a business expense on total premiums paid. This deduction is not limited to the age-based Eligible Premium amounts listed above.
The LTCI premiums that are paid by the corporation are not to be included in the employee’s income. The benefits received by the employee from their employer paid tax-qualified LTCI plan are non-taxable and are therefore not included in the employee’s AGI.
2020 STATE TAX INCENTIVES
Many states will offer tax incentives to encourage you to purchase LTCI. The information provided in our tax guide is not tax advice and does not guarantee that state benefits will be available. Please speak with your tax consultant to confirm if your state has a tax benefit available.
If you have not yet purchased an LTCI policy, and wish to speak to a specialist, request a quote and get started on your planning journey today.