Purchasing LTCi can offer some tax breaks. While we don’t offer tax advice, we want to alert you to the opportunities available so you can discuss the topic with your tax professional and see if they apply to you or your clients. (You cannot rely on comments herein.  We share our understanding of the tax laws solely to help you or your client determine whether tax issues are significant to a decision regarding buying LTCi.  If tax issues are significant, then your client should rely on the tax advice of his/her tax professional. )


Employers fall into 3 categories:

·         Those which pay income taxes directly to the Federal government, such as C-Corporations.  Professional Corporations, Personal Service Corporations and LLCs can choose to be taxed in this fashion.

·         Pass-Through entities do NOT pay income taxes directly to the Federal government.  Instead, they report their earnings to their owners; if someone owns 37% of the company, 37% of the earnings are reported to that owner.  The owner includes the income in the owner’s personal tax return.  Pass-through entities include S-Corps, sole proprietors, partnerships, family limited liability corporations, some professional corps, etc.

·         Non-profit employee LTCi taxation is the same as being non-owner employee of a for-profit.  However, the non-profit does not enjoy a tax break unless some portion of the premium is expensed through a for-profit subsidiary.

Employers fully deduct their entire LTCi premium for employees and employees’ tax dependents.  The employee incurs NO imputed taxable income when the premium is paid (unless they are considered to be an owner of a pass-through entity) and NO taxable income when benefits are received.  Besides this great “triple play”, discrimination is specifically allowed by law, so employers do NOT need to provide the same program for all employees.  Furthermore, payroll taxes do not apply to LTCi premiums and exposure to “excess income” tax is reduced.  Many programs cover only owner-employees (but they cover these people in their employee capacity, not in their owner capacity) and/or key executives and their spouses.

Pass-through entities have the same situation as C-Corps, except the tax break is capped for owners (any partner; LLC; sole proprietor; 2%-or-more owner in an S-Corporation).  The business takes a full deduction, just like a C-Corp.  The full amount is reported as imputed income only to owners, who then deduct the amount indicated below as a self-employed health insurance deduction (line 29 in the 2014 form 1040 tax return).  IRS Publication 535 (page 18; see attached) documents that the premium must be paid or reimbursed by the business for partners or 2%+ S-corporation owners.   For any employees who are non-owners, the rules are the same as for C-Corps.


Age at end of tax year 2018 limitation per person*  2017 limitation  per person* Jump in limitation at age change
 40 or less $420  $410
 41 or more, but not yet 51 $780  $770 86%
51 or more, but not yet 61 $1,560  $1,530 100%
61 or more, but not yet 71 $4,160  $4,090 167%
71 or more $5,200  $5,110 25%

*Applies to tax-qualified long-term care insurance policies for tax years ending in 2016 (§213(d)(10)), except those paid by a non-profit employer or a for-profit employer which pays income taxes directly to the Federal government or a pass-through entity on behalf of a non-owner. 2016 Source: IRS Revenue Procedure 2015-53; 2017 Source: IRS Revenue Procedure 2016-55 (2017 limits).

The limitation applies SEPARATELY for each spouse, so a 63-year-old and 58-year-old couple has $3,900 and $1,460 caps respectively in 2016, which can total $5,360. Om addition to increasing when people reach age 41, 51, 61 and 71 (by the percentages shown above), these amounts are indexed. In 2019, when the 58-year-old will be 61 years old, the deductions (assuming a 3% index) will have increased to $4,262 for each of them, which can total $8,524. As you can see, the tax break can grow significantly in just a few years. 


Tax guides from various insurers are below.  Most guides are not approved for use with clients, but the John Hancock guide is approved for use with business owners.  Click for a  list of state tax incentives.

Carrier Tax Information for Traditional LTCi products: