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The Tax Deductibility of Tax-Qualified
Long-Term Care Insurance (LTCI) Premiums
Presenter Name
Presenter Title
LTC-3227 12/2006
For agent & financial professional training purposes only. Not for use with the public.
John Hancock Life Insurance Company, Boston, MA 02117
Revised 2/2009
Individual Deduction
• Itemized medical expenses (including LTCI premiums)
• Exceeds 7.5% of Adjusted Gross Income (AGI)
• Portion of LTCI premium limited to the Eligible LTCI
Premium (seen on next slide)
• Includes Eligible LTCI Premiums paid for spouses and
dependents [IRC 161(l)]
• Generally, benefits received from Tax-Qualified LTCI are
excluded from gross income [IRC 7702B and 104(a)(3)]
Eligible LTCI Premiums 2009
Table 1
40 or Younger
$320
41 - 50
$600
51 - 60
$1,190
61 - 70
$3,180
71 or Older
$3,980
For taxpayers that itemize their deductions, eligible premiums can be included with their medical
care expenses.
Individual Example
Basic Information
Age of Individual
55
Adjusted Gross Income (AGI)
$55,000
Medical Expenses (Excluding LTCI premium)
$4,000
Annual Premium for Tax-Qualified LTCI policy $2,000
Calculating the Deduction
Eligible LTCI Premium (From Table 1)
$1,190
Total Medical Expenses
$5,190 ($4,000 + $1,190)
7.5% of AGI
$55,000 X 7.5% = $4,125
Medical Expenses exceeding 7.5% of AGI
$1,065 ($5,190 - $4,125)
Total Itemized Deduction
$1,065
AGI Less Itemized Deduction
$53,935 ($55,000 - $1,065)
Self-Employed Individual Deduction
• Itemized medical expenses (including Eligible LTCI
premiums)
• Portion of LTCI premium limited to the Eligible LTCI
Premium
• Includes Eligible LTCI Premiums paid for spouses and
dependents [IRC 161(l)]
• Not necessary to meet 7.5% (AGI) threshold
• Generally, benefits received from Tax-Qualified LTCI are
excluded from gross income [IRC 7702B and 104(a)(3)]
Self-Employed Example
Basic Information
Age of Self-Employed Individual
55
Gross Income
$60,000
Annual Premium for Tax-Qualified LTCI
Policy
$2,000
Calculating the Deduction
Eligible LTCI Premium (From Table 1)
$1,190
Gross Income Less Deduction
$58,810 ($60,000 - $1,190)
Partnership / Limited Liability Company (LLC) / Subchapter
S Corp
• Treated as self-employed
– Partners of a partnership
– Members of LLC that is taxed as a Partnership
– Shareholders/employees of Subchapter S Corporations who
own more than 2% of the outstanding or voting stock of S Corp
• The partnership, LLC, or Sub S Corp pays the LTCI
premium
– The partner, member or shareholder must include the LTCI
premium in Adjusted Gross Income, but can deduct age based
Eligible LTCI Premium
– Not necessary to meet the 7.5% AGI threshold
Subchapter C Corporation
• A C Corporation purchasing a TQ LTCI policy on behalf of
employee, his/her spouse or dependents
– Deduct 100% of TQ LTCI premiums paid as a business
expense
– Not limited to the age-based LTCI premium amount from the
table
– The corporation can discriminate
• LTCI Premium excluded from employee’s Adjusted Gross
Income
• 2% or less shareholder/employees of Subchapter S
Corporation are treated as employees
Employer Paid Example
Basic Information
Premium Paid by Subchapter C
Corporation
$20,000
($2,000 premium X 10 individuals)
Calculating the Deduction
Total Business Expense Deduction
$20,000
Calculating the Exclusion
Amount Excluded from Each
Employee’s Gross Income
$2,000
Employer-Pay Contributory Arrangement on Behalf of an
Employee
• If only a portion of the employee premium is paid by the
employer
– Employee may include the portion of the premium
he/she pays (up to the age-based limits for Eligible LTCI
Premium) with their itemized medical expenses
Generally, benefits received under a TQ LTCI policy that was purchased by an individual will be
excluded from gross income. Premiums paid by the employer are also excluded from gross income.
Partial Employer Pay Example
Basic Information
Age of Employee
55
Adjusted Gross Income
$55,000
Medical Expenses (Excluding LTCI premiums)
$6,000
Premium Paid by Employee
$1,500 ($2, 000 - $500 ER paid)
Calculating the Deduction
Eligible LTCI Premium (From Table 1)
$1,190
Total Medical Expenses
$7,190 ($6,000 + $1,190)
7.5% of AGI
$4,125 ($55,000 x 7.5%)
Medical Expenses Exceeding 7.5% of AGI
$3,065 ($7,190 - $4,125)
Total Itemized Deduction
$3,065
AGI Less Itemized Deduction
$51,935 ($55,000 - $3,065)
Gift Tax Exclusion
• For 2009, annual $13,000 per donee Gift Tax Exclusion
• Donor has the ability to pay for the medical expenses of a
donee
• Includes Tax-Qualified LTCI premiums
• Exclusion is subject to the age-based Eligible LTCI premium
table
Gift Tax Exclusion Example
Basic Information
Annual Gift Tax Exclusion
$13,000
Age of LTCI Policy recipient (Donee)
55
Annual Premium for Tax-Qualified LTCI Policy
(Paid by Donor)
$1,500
Calculating the Exclusion
Eligible LTCI Premium (from Table 1)
$1,190
LTCI Premium Amount that Would Reduce the
Annual Gift Tax Exclusion
$310 ($1,500 - $1,190)
Donor’s Reduced Annual Gift Tax Exclusion
Amount
$12,690 ($13,000 - $310)
HSA / HRA / Cafeteria Plans / FSA
• Health Savings Accounts (HSA)
– LTCI premiums can be reimbursed through a HSA, tax free, up to
the limits in the Eligible LTCI Premium table, even if offered
through an employer provided Cafeteria Plan
• Health Reimbursement Accounts (HRA)
– Reimbursement for LTCI premiums are allowable under an HRA.
Although employers pay for HRAs, an HRA cannot be provided
by salary reduction or through Cafeteria Plans
• Cafeteria Plans
– LTCI policies cannot be purchased with pre-tax dollars under an
employer-provided Cafeteria Plan
• Flexible Spending Accounts (FSA)
– LTCI premiums cannot be reimbursed through an FSA
The Tax Deductibility of Tax-Qualified
Long-Term Care Insurance (LTCI) Premiums
Presenter Name
Presenter Title
LTC-3227 12/2006
For agent & financial professional training purposes only. Not for use with the public.
John Hancock Life Insurance Company, Boston, MA 02117
Revised 2/2009