Premiums

<div class="Section1">Yes, subject to limitation.<div class="Section1"><br /> <br /> IRC Section&nbsp;213(a) allows a deduction for the unreimbursed medical expenses paid during the tax year of the taxpayer (plus his or her spouse and dependents) which exceed 7.5&nbsp;percent of the taxpayer&rsquo;s adjusted gross income (AGI). The 7.5 percent threshold was made permanent in 2020.<br /> <br /> For the purposes of this section, the following are considered medical expenses:<br /> <blockquote>Amounts paid for qualified long-term care services (per 7702B(c)); subject to the exceptions below.<br /> <br /> Amounts paid for any qualified long-term care insurance contract (defined by 7702B(b)); subject to the limits described as &ldquo;Eligible Premiums&rdquo; below.</blockquote><br /> <table border="1" align="center"><br /> <tbody><br /> <tr><br /> <td style="text-align: center;" colspan="2" width="539"><strong>&ldquo;Eligible LTC Premiums&rdquo;</strong></td><br /> </tr><br /> <tr><br /> <td width="381"><strong>Attained age of individual before close of the 2025 tax year</strong></td><br /> <td style="text-align: center;" width="159"><strong>Limitation</strong></td><br /> </tr><br /> <tr><br /> <td width="381">40 or less</td><br /> <td style="text-align: center;" width="159">$480</td><br /> </tr><br /> <tr><br /> <td width="381">More than 40 but less than 50</td><br /> <td style="text-align: center;" width="159">$900</td><br /> </tr><br /> <tr><br /> <td width="381">More than 50 but less than 60</td><br /> <td style="text-align: center;" width="159">$1,800</td><br /> </tr><br /> <tr><br /> <td width="381">More than 60 but less than 70</td><br /> <td style="text-align: center;" width="159">$4,810</td><br /> </tr><br /> <tr><br /> <td width="381">More than 70</td><br /> <td style="text-align: center;" width="159">$6,010</td><br /> </tr><br /> </tbody><br /> </table><br /> <br /> <hr><br /> <br /> <strong>Planning Point:</strong> The table above was established in 1997 and is indexed for inflation. The limits rise by a medical care cost adjustment, rounded to the nearest $10, based on changes in the medical care component of the CPI (C-CPI-U for tax years beginning after 2017) each August. Although the limits are fairly modest in relation to an average premium, producers should remember that&nbsp;1) the limits rise each year, and 2) the limits effectively rise every 10 years as a policyholder ages through the bands. Thus, the tax advantage grows over time.<br /> <br /> <hr><br /> <br /> An amount paid for qualified long-term care services as defined in IRC Section&nbsp;7702B(c) ( Q <a href="javascript:void(0)" class="accordion-cross-reference" id="477">477</a>) will not be treated as paid for medical care if a service is provided by an individual&rsquo;s spouse or a relative (directly or through a partnership, corporation or other entity) unless the service is provided by a licensed professional. A relative generally is any individual who can be considered a dependent under the IRC.<a href="#_ftn1" name="_ftnref1">¹</a> In addition, a service may not be provided by a corporation or partnership that is related to an individual within the meaning of IRC Sections 267(b) or 707(b).<a href="#_ftn2" name="_ftnref2">²</a><br /> <br /> When the qualified LTCI contract is part of a life or annuity contract (or a rider attached to one), the rules around premium deductibility are different ( Q <a href="javascript:void(0)" class="accordion-cross-reference" id="477">477</a>):<br /> <ul><br /> <li>No deduction is allowed under Section&nbsp;213(a) for any premium payment made for coverage under a qualified LTCI contract if such payment is made as a charge against the cash surrender value of the life contract or cash value of the annuity contract.<a href="#_ftn3" name="_ftnref3">³</a></li><br /> <li>But, not all combination products are structured this way. There is at least one (and perhaps only one) suite of combination products available where the qualified LTCI riders are paid separately by the policyholder (and <em>not</em> via internal charge from the cash value). The premiums for these riders are deductible under normal rules above.</li><br /> </ul><br /> </div><div class="refs"><br /> <br /> <hr align="left" size="1" width="33%"><br /> <br /> <a href="#_ftnref1" name="_ftn1">1</a>.&nbsp;&nbsp;&nbsp;&nbsp; IRC &sect;&sect; 152(a)(1) through (8).<br /> <br /> <a href="#_ftnref2" name="_ftn2">2</a>.&nbsp;&nbsp;&nbsp;&nbsp; IRC &sect; 213(d)(11).<br /> <br /> <a href="#_ftnref3" name="_ftn3">3</a>.&nbsp;&nbsp;&nbsp;&nbsp; IRC &sect; 7702B(e)(2).<br /> <br /> </div></div><br />

<div class="Section1">No.</div><br /> <div class="Section1"><br /> <br /> An employer’s plan that provides coverage under a qualified long-term care insurance contract generally is treated as an accident and health plan with respect to that coverage.<a href="#_ftn1" name="_ftnref1">¹</a> Thus, premiums for long-term care insurance coverage paid by an employer are not includable in the gross income of employees.<a href="#_ftn2" name="_ftnref2">²</a><br /> <br /> <hr /><br /> <br /> <strong>Planning Point:</strong> If the employer only pays a partial amount of an employee’s premium, the employee is still entitled to deduct the balance paid. Of course, as an individual, the employee would include the portion of the qualified LTCI plan paid (up to the age-based eligible amount) with other itemized medical expenses, and deduct the amount that exceeds 7.5 percent of AGI.<br /> <br /> <hr /><br /> <br /> <strong>Planning Point:</strong> When a C Corporation, S Corporation, LLC, partnership or sole proprietor purchases qualified LTCI for its employees, such amounts are not includable in the gross income of said employees. A question arises when these employees are <em>also</em> the owners of the relevant company. If that is the case, the analysis below controls.<br /> <br /> <hr /><br /> <br /> Partners of a partnership, members of an LLC (taxed as a partnership) and greater-than-2 percent shareholders of an S corporation are all treated as self-employed individuals for tax purposes. As such, the qualified LTCI premiums paid on their behalf by their businesses <em>are</em> included in their AGI (i.e. passed-through as income); but, they may also turn around and deduct up to 100 percent of their age-based eligible premium (without having to satisfy the AGI threshold applicable to individual filers).<br /> <br /> Shareholder/employees of a C corporation (who are treated as employees) and shareholder/employees who own 2 percent-or-less of an S corporation may exclude from their gross income the entire amount of qualified LTCI premium paid on their behalf (even if it exceeds the age-based eligible premium amounts).<br /> <br /> <hr /><br /> <br /> <strong>Planning Point:</strong> Small business owners who have an opportunity to pay for their QLTCI premiums “through the business” can save a lot of money this way. If we imagine an owner (e.g., of a partnership, LLC or S Corp) who pays a premium with after-tax dollars, he has to “gross-up” his paycheck in order to cover the income and payroll taxes necessary to net the proper amount.<br /> <br /> <hr /><br /> <br /> Having then paid the premium, the employee might attempt to take a deduction as an Individual, adding age-based eligible premium to other unreimbursed medical expenses, and deducting the portion that exceeds the relevant AGI threshold.<br /> <br /> The business could also pay premiums on the employee’s behalf. Although this amount is reported as income to our business owner, the company benefits by avoiding payroll taxes on the amount (and even worker’s compensation). Then, the owner benefits from taking the self-employed health insurance deduction for the full amount of the eligible premium—not just amounts that exceed 7.5 percent of AGI.<br /> <br /> </div><br /> <div class="refs"><br /> <br /> <hr align="left" size="1" width="33%" /><br /> <br /> <a href="#_ftnref1" name="_ftn1">1</a>.     IRC § 7702B(a)(3).<br /> <br /> <a href="#_ftnref2" name="_ftn2">2</a>.     IRC § 106(a); <em><em>see</em> </em>House Comm. Report on § 321 of HIPAA ’96, P.L. 104-191.<br /> <br /> </div>

<div class="Section1">Yes.<div class="Section1"><br /> <br /> The individual may deduct premiums paid for a qualified long-term care insurance contract (for oneself, one&rsquo;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.<a href="#_ftn1" name="_ftnref1">¹</a><br /> <br /> The self-employed deduction is not subject to the &ldquo;7.5&nbsp;percent of AGI&rdquo; threshold which must be met by individual taxpayers; however, the maximum amount of premium which may be taken as an &ldquo;above-the-line&rdquo; deduction is limited by the age-based eligible premium table (indexed for inflation)<a href="#_ftn2" name="_ftnref2">²</a> ( Q <a href="javascript:void(0)" class="accordion-cross-reference" id="487">487</a>).<br /> <br /> <hr><br /> <br /> <strong>Planning Point:</strong> Partners of a partnership, members of an LLC (taxed as a partnership), and greater-than-2&nbsp;percent shareholders/employees of an S Corporation are <em>also</em> taxed under the self-employed rules. ( Q <a href="javascript:void(0)" class="accordion-cross-reference" id="489">489</a>).<br /> <br /> <hr><br /> <br /> 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&rsquo;s) employer. A &ldquo;subsidized health plan&rdquo; is one in which the employer pays all or a part of the employee&rsquo;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 <a href="javascript:void(0)" class="accordion-cross-reference" id="477">477</a>), and to plans that do not include this coverage and are not such contracts.<a href="#_ftn3" name="_ftnref3">³</a> In other words, the disallowance of this deduction in a given month would require not just eligibility or participation in <em>any</em> subsidized health plan (of the taxpayer or their spouse), but specifically eligibility or participation in a subsidized <em>long-term care</em> plan through work.<br /> <br /> </div><div class="refs"><br /> <br /> <hr align="left" size="1" width="33%"><br /> <br /> <a href="#_ftnref1" name="_ftn1">1</a>.&nbsp;&nbsp;&nbsp;&nbsp; IRC &sect;&sect; 162(l), 213(d).<br /> <br /> <a href="#_ftnref2" name="_ftn2">2</a>.&nbsp;&nbsp;&nbsp;&nbsp; IRC &sect; 162 (I)(2)(C).<br /> <br /> <a href="#_ftnref3" name="_ftn3">3</a>.&nbsp;&nbsp;&nbsp;&nbsp; IRC &sect; 162(l)(2)(B)(i).<br /> <br /> </div></div><br />

<div class="Section1">Yes.<div class="Section1"><br /> <br /> An employer plan providing coverage under a qualified long-term care insurance contract is treated as an accident and health insurance plan with respect to this coverage.<a href="#_ftn1" name="_ftnref1">¹</a> An employer generally may deduct health insurance premiums paid for employees as a business expense ( Q <a href="javascript:void(0)" class="accordion-cross-reference" id="330">330</a>). Thus, premiums for a qualified long-term care insurance contract paid by an employer for employees are similarly deductible.<br /> <br /> <hr><br /> <br /> <strong>Planning Point:</strong> The amount deductible can vary depending on the business structure, which is summarized by the table below.<br /> <br /> <hr><br /> <br /> <table border="1" align="center"><br /> <tbody><br /> <tr><br /> <td colspan="3" width="539"><br /> <p style="text-align: center;"><strong>Tax Deduction</strong></p><br /> <p style="text-align: center;"><strong>(<em><em>see</em></em> Eligible LTC Premiums for 2025 ( Q <a href="javascript:void(0)" class="accordion-cross-reference" id="487">487</a>))</strong></p><br /> </td><br /> </tr><br /> <tr><br /> <td rowspan="2" width="119">For the Business</td><br /> <td width="236"><strong>Actual premium</strong> may be deductible when sole proprietor, S-Corp, LLC or partnership purchases QLTCI for employees</td><br /> <td rowspan="2" width="184"><strong>Actual premium</strong> may be deductible when a C-Corp purchases QLTCI on owners, employees, spouses or dependents</td><br /> </tr><br /> <tr><br /> <td width="236"><strong>Eligible premium</strong> may be deductible when sole proprietor, S-Corp, LLC or partnership purchases QLTCI for owners, spouses or dependents</td><br /> </tr><br /> <tr><br /> <td width="119">For its Employees</td><br /> <td colspan="2" width="420"><strong>Eligible premium</strong> may be deductible when an employee purchases his own QLTCI</td><br /> </tr><br /> </tbody><br /> </table><br /> Because the business is able to deduct &ldquo;actual premiums,&rdquo; the limit is generally based on what is considered &ldquo;reasonable&rdquo; in comparison to income, a test which is generous. This is just one of the reasons we tend to find higher-premium, limited-payment plans in the executive carve-out worksite space. Whereas an individual would find his deduction capped, and not be able to fully take advantage of a large premium (say, $10,000 per year), this same amount, were it paid by his C corporation employer, would likely be fully deductible to the company.<br /> <br /> Having said that, in the situation described above (e.g., an individual with a limited-pay policy whose premium greatly exceeds the eligible premium limit), some have suggested amortizing the applicable deduction over the individual&rsquo;s life expectancy.<br /> <br /> </div><div class="refs"><br /> <br /> <hr align="left" size="1" width="33%"><br /> <br /> <a href="#_ftnref1" name="_ftn1">1</a>.&nbsp;&nbsp;&nbsp;&nbsp; IRC &sect; 7702B(a)(3).<br /> <br /> </div></div><br />