488 / May a self-employed individual deduct premiums paid for qualified long-term care insurance?
The individual may deduct premiums paid for a qualified long-term care insurance contract (for oneself, one’s spouse and dependents). Because amounts paid for qualified long-term care insurance contracts fall within the definition of medical care, qualified long-term care insurance premiums are eligible for deduction from income by self-employed individuals.1
The self-employed deduction is not subject to the “7.5 percent of AGI” threshold which must be met by individual taxpayers; however, the maximum amount of premium which may be taken as an “above-the-line” deduction is limited by the age-based eligible premium table (indexed for inflation)2 ( Q 487).
Planning Point: Partners of a partnership, members of an LLC (taxed as a partnership), and greater-than-2 percent shareholders/employees of an S Corporation are also taxed under the self-employed rules. ( Q 489).
The deduction is not available to a self-employed individual for any calendar month in which he or she is eligible to participate in any subsidized health plan maintained by his or her (or a spouse’s) employer. A “subsidized health plan” is one in which the employer pays all or a part of the employee’s premium. This rule is applied separately to plans that include coverage for qualified long-term care services or are qualified long-term care insurance contracts ( Q 477), and to plans that do not include this coverage and are not such contracts.3 In other words, the disallowance of this deduction in a given month would require not just eligibility or participation in any subsidized health plan (of the taxpayer or their spouse), but specifically eligibility or participation in a subsidized long-term care plan through work.
1. IRC §§ 162(l), 213(d).
2. IRC § 162 (I)(2)(C).