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The Tax Deductibility of Tax-Qualified Long-Term Care Insurance (LTCI) Premiums

Presenter Name Presenter Title. The Tax Deductibility of Tax-Qualified Long-Term Care Insurance (LTCI) Premiums. For agent & financial professional training purposes only. Not for use with the public. John Hancock Life Insurance Company, Boston, MA 02117. Revised 2/2009. LTC-3227 12/2006.

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The Tax Deductibility of Tax-Qualified Long-Term Care Insurance (LTCI) Premiums

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  1. Presenter NamePresenter Title The Tax Deductibility of Tax-Qualified Long-Term Care Insurance (LTCI) Premiums For agent & financial professional training purposes only. Not for use with the public. John Hancock Life Insurance Company, Boston, MA 02117 Revised 2/2009 LTC-3227 12/2006

  2. 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)]

  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.

  4. Individual Example

  5. 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)]

  6. Self-Employed Example

  7. 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

  8. 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

  9. Employer Paid Example

  10. 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.

  11. Partial Employer Pay Example

  12. 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

  13. Gift Tax Exclusion Example

  14. 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

  15. Presenter NamePresenter Title The Tax Deductibility of Tax-Qualified Long-Term Care Insurance (LTCI) Premiums For agent & financial professional training purposes only. Not for use with the public. John Hancock Life Insurance Company, Boston, MA 02117 Revised 2/2009 LTC-3227 12/2006

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