Long-Term Care and Taxes

Welcome to Mutual of Omaha's Advanced Markets Minute. Today's article is called "Long-Term Care and Taxes."

Whether he created the quote himself or borrowed it from dramatist Christopher Bullock, Benjamin Franklin's famous statement about death and taxes certainly hits home as we approach April 15. Yet this is also a good time of the year to remember that we offer something that can help with those taxes. And it is also something most people will need.

Long-term care insurance provides essential funds for care, but it also provides tax benefits. As you know, long-term care benefits are income tax free as long as they don't exceed actual qualified long-term care expenses or are below the federal per diem amount. For 2022, the federal per diem amount is $390 per day, or about $140,000 per year.

There are more tax benefits though. Individuals who own qualified long-term care policies can add the eligible (age based) premiums on those policies to their other unreimbursed medical expenses and, if they itemize their deductions, they can deduct from their taxable income medical expenses in excess of 7.5% of their adjusted gross income (AGI).

For business owners it gets better. Owners of pass-through businesses such as sole proprietorships, LLCs, or S corporations can deduct up to the age-based eligible premium amounts for themselves and their dependents without needing to meet the 7.5% of AGI. These eligible premiums can be found in our 2022 Tax Guide. These business owners can also deduct the actual premium for any non-owner employees they pay premiums for.

If you happen to meet the owner/employee of a C corporation, you can deliver the good news that he or she has just about the best insurance related tax situation around. That C corporation can deduct the full actual premium-not just the eligible premium-- on the owner/employee's policy, the policy on his or her dependents, and also on any non-owner employees.

The benefits paid by qualified long-term care policies of course are still tax-free. So, the C corporation can deduct the full premium, the owner/employee does not have to recognize it as taxable income, and can still have tax-free benefits. It doesn't get much more tax advantaged than that.

But some states actually make it better still. Some states even offer a tax credit, which is even better than a deduction, since it is a direct dollar-for-dollar reduction in the amount of taxes owed. Check your state laws for the specifics in your area.

Long-term care insurance can provide asset protection and peace of mind for your clients. And it can also provide your clients a reason to think kindly of you every April 15.