Tax Advantages of Workplace LTC Planning

September 2012 Business owners have many motivations to bring long term care insurance (LTCI) policies into their company’s benefit offerings.   Some make the decision based on their own personal experience with the cost and pain that a lack of planning can bring.  Others wait until a valued employee asks for this insurance to be included in his/her compensation package.  More and more often, however, it is a key advisor — such as an accountant or benefits advisor — who recommends LTCI, citing the product’s tremendous tax advantages. In a nutshell, those advantages are (all statements refer to tax-qualified policies): DEDUCTIBLE:  Premiums for non-owner employees and spouses are usually 100% deductible (if total compensation is “reasonable”); NOT INCLUDED in TAXABLE INCOME:  Premiums paid by an employer are not included in an employee’s taxable income; TAX-FREE:  Benefits are almost always received tax-free*; SELECTIVE: Employer-paid programs can often be brought in without having to cover all employees. For Owners Sole proprietors who pay premiums for self, spouse and other dependents may deduct eligible LTCI premiums up to maximum age-based deduction limits (i.e., insured age 51-60, $1,310 is deductible in tax year 2012). For partnerships and LLCs taxed as partnerships, premiums attributed to each partner/member (spouse/dependent(s)) are included in their income.  Partner/member may deduct eligible LTCI premium up to maximum age-based deduction limits (i.e., insured age 51-60, $1,310 is deductible). In the case of an S Corporation greater than 2% shareholder and spouse/dependent(s), premiums attributed are included in their income, and the greater than 2% shareholder may deduct eligible LTCI premiums up to maximum age-based deduction limits (i.e., insured age 51-60, $1,310 is deductible. TO ALSO CONSIDER In addition to the deductibility of premiums, policy benefits are almost always tax-free.*  Compare this to disability insurance, where the benefit is taxable if a deduction is taken for premiums. The business checkbook can be used to provide long term care insurance, an important insurance policy that can be counted on to contribute to financial well-being in retirement. This article is only a summary of deductibility highlights.  Please consult with your tax advisor for specific tax advice.  For additional information on long term care insurance, please contact me. *As long as the amount paid by insurance does not exceed the actual cost of qualified covered care, or does not exceed $310/day, policy proceeds are federally...