Long-term care insurance can is being offered increasingly by employers to their workers without cost to close a dangerous planning gap. Many workers are not aware, but traditional health insurance does not cover long-term care expenses, leaving the sponsored savings accumulated by employees over many years at risk.
What employers are not generally aware of is that generous tax rules exist that allow them to selectively pay premiums for groups of employees such as owners and key executives. Long-term care insurance is not subject to non-discrimination rules. Offering long-term care insurance to owners and executives can be a highly effective way to reward key employees as part of a program to recruit and retain highly valued employees.
Premium payments by employers for long-term care insurance are treated by the Federal government as medical expenses and are be tax deductible to the employer based on form of organization. Not only are premiums paid by the employer on behalf employees tax deductible as a business expense, they do not count as income to the employee, and when benefits from the policy are paid out, they are generally received by the employee tax free.
As background, the Health Insurance Portability and Accountability Act of 1996 (HIPAA) provided a set of tax incentives for individuals and companies to take financial responsibility for long-term care needs. Under the Act, both the employee and the employer may make the premium payments, and there are no limits on the amount an employer may contribute as premiums for its employee’s LTC Insurance policy.
If an employer pays all or a portion of the tax-qualified long-term care insurance premiums on behalf of an employee, the amount paid is deductible by the employer as a business expense. The deduction is not limited by the age-based limits. The entire employer contribution would also be excluded from the employee’s AGI.
Also, if the employer only pays a portion of the premium, the employee is able to apply the balance that he/she pays towards his/her medical expenses, up to the Eligible Premium amount, and would then be entitled to a deduction for medical expenses that exceed 7.5% of AGI.
In addition, many states are also now offering incentives to encourage the purchase of insurance protection and we can help you identify these opportunities.