Have your business owner clients had a successful year? As the fourth quarter of 2023 quickly approaches, now is a great time to have a discussion with your clients who own businesses. Those who have had a successful year thus far can take advantage of a great opportunity to maximize tax advantages by purchasing long-term care coverage for themselves and offering coverage to employees. Offering long-term care insurance is a creative way for business owners to recruit, reward, and retain employees as well as ensure additional tax deductions for their business.
Read More: The Importance of Creating a Plan for Aging
Business Owners Stand Out with LTCI
Since the pandemic, hiring and retaining employees has become difficult for many companies. Business owners are seeking new ways to stand out from their competition and preserve the time, effort, and expense it takes to train new employees. As a result, employers have begun offering more innovative benefits to both new and tenured employees.
Offering long-term care insurance (LTCI) as either an employer-paid or voluntary benefit can help increase employee loyalty and attract new hires. After all, one in six working Americans is currently providing care to a loved one, and 70% of these caregivers are having work-related difficulties. By offering LTCI to employees, a business owner can offer a viable solution to the employee’s own long-term care dilemma, allowing them to concentrate their focus on providing care to their loved one. In addition, premiums paid through the employer can be tax deductible.
Employers (including non-profits) who pay some or all of a non-owner employee’s LTCI premium may deduct the expense. The employer can also deduct the long-term care insurance premium paid for a spouse or other tax dependent of the employee. There is no limit to the amount of premium an employer can pay and deduct, and premiums paid by an employer are excluded from the employee’s gross income. This applies to ANY business entity as long as the employer is paying for a non-owner employee.
Breaking Down LTCI Deductions for Employers
- The most generous tax advantages are available to C-Corporations purchasing LTCI for an owner/employee, or any business entity purchasing LTCI for a non-owner employee. These LTCI premiums are 100% deductible.
- Owners of pass-through entities such as self-employed individuals or sub-chapter S who purchase LTCI through their business will qualify for a deduction, but only up to age-based limits. However, the deduction can be taken “above the line.”
- Individuals purchasing long-term care coverage who itemize may qualify for a deduction of LTCI premiums as a medical expense (up to age-based limits), assuming they meet the 7.5% of Adjusted Gross Income (AGI) threshold. If total medical expenses, including the eligible LTCI premium, exceed 7.5% of AGI, the excess is deductible.
- Using HSA distributions to pay long-term care premiums (up to age-based limits) is a valuable option that does not require meeting the 7.5% AGI threshold. LTCI premiums are an acceptable, tax-free healthcare expense from an HSA, but only for tax-qualified policies.
2023 Long-Term Care Insurance Federal Tax-Deductible Limits
|Taxpayer’s Age at End of Tax Year||Deductible Limit|
|40 or less||$480|
|More than 40 but not more than 50||$890|
|More than 50 but not more than 60||$1,790|
|More than 60 but not more than 70||$4,770|
|More than 70||$5,960|
Source: IRS Revenue Procedure: 2022-38
Whether or not your client owns a business, it’s important they have a plan for long-term care. If your client has assets to protect, they should certainly consider long-term care coverage as part of their retirement plan. When discussing your client’s plan for long-term care, ask if they are a business owner and explain the tax advantages available to them. For more information on the long-term care insurance products available in your state, please contact our office.