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Employers can benefit from tax deductions for long term care insurance for their employees if they pay all or part of the premiums. There are maximum deductions per employee, and the deductions vary since the premium on long term care insurance is age sensitive. You will need a tax expert to assist you in determining the maximum allowable deductions and how to carryover the excesses.

Long term care insurance premiums have the added advantage of being exempt from both the employer and employee portions of FICA taxes. This is because they are treated exactly the same as health insurance premiums paid by the employer. And like other health insurance, employers can pick and choose who they cover and how much to pay for each employee. Sometimes executives receive more paid insurance than rank and file employees, for example. This is called an Executive Carve-out Plan.

Employees may also receive a tax benefit for premiums they pay themselves if the amount of the employee’s total medical expenses exceeds 7.5% of his or her adjusted gross income. Although long term care insurance cannot be part of a flexible spending account in a Sec. 125 cafeteria plan, it can be part of a tax-free HSA account. This can be a very effective to accumulate tax-free retirement income for medical expenses.

Some states also have special tax benefits, such as Maryland which has an income tax credit for the first year you purchase long term care insurance.

In order for either an employer or employee to claim long term care insurance as a deduction, the company offering the insurance must meet the standards established in the Health Insurance Portability and Accountability Act of 1996 (HIPPA). Consult your tax and benefit adviser for details.

Long term care insurance can be purchased with premiums for life, or it may be purchased with premiums lasting only 10 years. The disadvantage of a 10 year payment is that the premiums are much higher. Consult your tax adviser regarding how much of the 10 year premium you will be able to deduct.

When considering the purchase of long term care insurance for yourself or your employees, remember that much of the premium expense will be offset by tax deductions and credits. Plus all of the benefits paid out are tax-free. Calculations will show the actual cost is extremely low considering the tax-free benefits received.

Long term care insurance both protects your other assets and income from devastating expenses and also guarantees you will receive the care you need when you need it most. And with the great tax benefits described in this article, we have no reason not to protect ourselves and our assets with this important and valuable type of insurance.

Leo J. Vidal, J.D., M.A., CPA has over 25 years financial experience. He is author of the book The 76 Biggest Financial Mistakes Made by Retirees. He may be reached through his websites at http://www.eldercaredollars.com and http://www.thetaxdoctor.info

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