Long Term Care Planning Advisors, LLC

Tax Treatment of LTC Premiums

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Federal Income Tax Treatment

Summary at a glance

Sole Proprietorship

C Corporation

S Corporation

Partnership

LLC

Tax treatment of

premiums paid

for employees

Fully deductible to entity, not

taxable to employee

Fully deductible to entity,

not taxable

to employee

Fully deductible to entity, not taxable to

employee

Fully deductible to entity, not

taxable to

employee

Fully deductible to entity,

not taxable

to employee

Tax treatment of

premiums paid for

owner/employees

Eligible premium

deductible above the

line

Fully deductible to entity,

not taxable

to employee

>2% of owner –

eligible premium

deductible above the

line*; all others fully

deductible to entity, not

taxable to employee

Eligible premium

deductible above

the line*

Eligible premium

deductible above

the line*

Premium paid by

Sole Proprietor

Corporation

Corporation

Partnership

LLC

Reported as income to

employee/owner

N/A

N/A

W-2 wages to >2%

owner

Schedule

K-1,

guaranteed income

Reporting depends on

whether elected Corp. or

Partnership status

Tax treatment of

premiums paid for

employee’s spouse

Fully deductible to entity, not

taxable to

employee

Fully deductible to entity, not

taxable to

employee

Fully deductible to entity, not

taxable to

employee

Fully deductible to entity, not

taxable to

employee

Fully deductible to entity,

not taxable

to employee

Tax treatment of

premiums paid for spouse as a

dependent of

owner/employee

Eligible premium

deductible above

the line*

Fully deductible to entity, not

taxable

to employee

>2% of owner –

eligible premium

deductible above the

line*; all others fully

deductible to entity, not

taxable to employee

Eligible premium

deductible above

the line*

Eligible premium

deductible above

the line*

* Above the line – treated as an adjustment to gross income on the Individual Income Tax Return, Form 1040 (i.e., before itemized deductions)

Long-Term Care Planning Advisors, LLC

HSA Tax Incentives

LTCI Tax Incentives

Using a Health Savings Account (HSA) to pay LTC Premiums:

If you are considering purchasing an LTC policy and own an HSA, you can take advantage of special tax considerations with LTCI policies that are unique for tax planning purposes and tax-deductibility.

Employer contributions to an HSA are federal income tax-free to the employee. Contributions made by the employee are tax-deductible. For 2008, HSA contributions are limited to $2,900 per year for individuals and $5,800 per year for families. In either case, contributions made to the account accumulate on a tax-deferred basis and withdrawals are considered tax-free if used to pay for “qualified” medical expenses. LTCI premiums are considered a qualified medical expense, and therefore are tax-deductible.

As an example, if an individual age 61 with a family was considering purchasing an LTC policy, and had an HSA, a tax-free withdrawal could be made to pay for the policy up to the age-based eligible LTCI premium. In this instance, the pre-tax HSA contribution in 2008 is up to $5,800. Of which, a tax-free withdrawal of $3,080 from the HSA could be used to pay for the qualified LTCI premiums.

Age-based Long-Term Care Insurance Premiums

Age at end of taxable year	Premium Limit 2010
40 or less	$330
41 through 50	$620
51 through 60	$1,230
61 through 70	$3,290
71 and above	$4,,110

Making a provision for the risk of needing long-term care should be an integral part of your financial and retirement plan. As the demographics shift in our population, more people will require long-term care services. To that end, the government offers many tax incentives to encourage individuals to purchase LTC insurance, maintain control and avoid Medicaid dependence. It is important to be prepared should a long-term care event occur and to recognize the value in creating a plan so that your assets and income can be protected from the financial drain of paying for your own care.