Deductibility of Employer-Paid Premiums
For purposes of determining tax liabilities with regards to S-Corporations, the tax code looks to the individual's ownership rights in the company. An employee who owns 2% or more of the S-Corporation is deemed to be an Employee/Owner, while one who owns less than 2% is treated as only an employee.

On Behalf of an Employee (Less than 2% Shareholder)

Indemnity Model policies pay the insured person a flat amount regardless of the amount of the insured person's expenses.

Indemnity Example 1

Judy purchases an Indemnity Long-Term Care Insurance Policy with coverage of $150 per day. Judy later needs Home Health Care services and the cost is $80 per day. Judy's Indemnity insurance coverage would pay her $150 per day of service even though her expenses are only $80. Judy can use the extra $70 in any way she sees fit.

Indemnity Example 2

Generally
A Limited Liability Company is a statutory business that may be treated as a corporation, a partnership, or a sole proprietorship for tax purposes.

As a result, to determine the tax implications of LLC-purchased Long-Term Care Insurance, one must first determine by which method the LLC is treated for federal income tax purposes.

Thus it follows:

* A LLC treated as Sole Proprietorship would look to the Sole Proprietor regulations for guidance;
* A LLC treated as a Partnership would look to the Partnership regulations for guidance; and

Business Deductibility of Employer-Paid Premiums

On Behalf of an Employee
A C-Corporation that purchases Tax-Qualified Long-Term Care Insurance on behalf of an Employee may deduct the premiums paid as an ordinary business expense. This holds true for Tax-Qualified Long-Term Care Insurance purchased for the Employee's spouse or other tax dependent.

On Behalf of an Employee Stockholder

Business Deductibility of Partnership-Paid Premiums

On Behalf of a Partner
A Partnership that purchases Tax-Qualified Long-Term Care Insurance on behalf of a Partner may deduct the premiums paid as an ordinary business expense. This holds true for Tax-Qualified Long-Term Care Insurance purchased for the Partner's spouse or other tax dependent.

On Behalf of an Employee

Deductibility of Employer-Paid Premiums
Sole Proprietors who purchase and pay for Tax-Qualified Long-Term Care Insurance policies for themselves, their spouses and their tax dependents may claim a deduction for the premiums paid as medical care expenses (IRC Sec. 162(l)(1)(A) and Sec. 213).

Individuals who purchase and pay for Tax-Qualified Long-Term Care Insurance policies for themselves, their spouses, and their tax dependents may claim the premiums paid as deductible personal medical expenses if the Individual itemizes his or her taxes (See Internal Revenue Code (IRC) Sec. 213(a) and IRC Sec.

For Tax-Qualified Long-Term Care Insurance policies that pay benefits under an Indemnity Model, benefit payments are subject to a daily dollar cap.

Simply put, Reimbursement Model policies repay the insured for qualifying long-term care expenses that he or she incurred, subject to the amount of coverage purchased.

Reimbursement Example 1

The Federal Government and many state governments have provided tax advantages for those who purchase long-term care insurance. Following is a general discussion of some of these tax advantages.

The information presented herein is not all-inclusive, nor is it intended to be. Many of the general rules discussed and examples provided have exceptions and limitations, and as a result it is possible that the general rule or example may not apply to you or your particular situation.

Please note that laws and regulations change frequently and are subject to differing interpretations.