Tax Benefits of Hybrid Life and Long Term Care Insurance Versus Hybrid Life Insurance with Care Riders 2024 – Part 1 – Long Term Care University – 03/15/24
Long Term Care University – Question of the Month – 03/15/24
Research
By Aaron Skloff, AIF, CFA, MBA
Q: We read ‘Hybrid Life Insurance With Care Riders Versus Hybrid Life And Long Term Care Insurance’ Part 1 and Part 2 and ‘Long Term Care Insurance Tax Benefits 2024’. Can Hybrid Life Insurance with Care Riders and Hybrid Life and Long Term Care Insurance be offered as a company benefit? If so, are there any tax advantages for employers or employees, or individuals?
The Problem – Attracting and Retaining Valuable Employees with Competitive Compensation
Offering an attractive benefits package can be a key element in attracting and retaining the highest quality employees.
The Solution – Offer Long Term Care Insurance as a Company Benefit to Employees
Whether the business is a sole proprietor or multi-national corporation, long term care insurance can be offered as a company benefit. Unlike most company benefits, which prohibit the employer from discriminating against who is offered a benefit, long term care insurance can be offered on a limited basis to certain classes of employees or on an unlimited basis at the company’s discretion.
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Tax Advantages for Businesses and Employees
C corporations can deduct the full Hybrid Life and Long Term Care Insurance (HLTC) base or acceleration (BoA) premiums and continuation or extension (CoE) premiums paid for owners and employees, their spouses and dependents as a business expense. The BoA premiums are reported as compensation to the owners and employees. C corporations can deduct the full Hybrid Life Insurance with Care Riders (HCR) premiums paid for owners and employees. The HCR premiums are reported as compensation to the owners and employees.
Sole proprietors cannot deduct the owner’s HLTC BoA premiums, but can deduct the owner’s full HLTC CoE premiums, subject to the age based limits below. They cannot deduct the owner’s HCR premiums.
Sole proprietors can deduct the employees’ full HLTC BoA and CoE premiums. The HLTC BoA premiums are reported as compensation to employees. They can deduct the employees’ full HCR premiums. The HCR premiums are reported as compensation to the employees.
Partnerships, LLCs and S Corps can deduct the owner’s full HLTC BoA and CoE premiums. The HLTC BoA and CoE premiums are reported as compensation to the owners. The CoE premium is subject to the age based limits below. They can deduct the owners’ full HCR premiums. The HCR premiums are reported as compensation to the owners.
Partnerships, LLCs and S Corps can deduct the employees’ full HLTC BoA and CoE premiums, and deduct the employees’ full HCR premiums. The HLTC BoA premiums and HCR premiums are reported as compensation to the employees.
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Tax Advantages for Individuals Purchasing Their Own Policy
Individuals and employees may be able to deduct all or a portion of the HLTC CoE premiums. They can add the HLTC CoE premiums to other medical expenses, including health insurance premiums. Amounts in excess of 7.5% of adjusted gross income (AGI) can be itemized as a medical expense deduction on Schedule A of Form 1040 of the federal income tax return, limited to the age based limits chart below. Premiums paid from an HSA are not subject to AGI rules, but subject to the age based limits chart below. HCR premiums cannot be itemized or paid from an HSA.
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Action Step – Offer Long Term Care Insurance as a Company Benefit to Employees and Take Advantage of Tax Benefits
Whether you are a sole proprietor, the benefits director of a mid sized LLC or the CEO of a multi-national corporation, implementing long term care insurance as an employee benefit can have tremendous qualitative and quantitative benefits. Request your insurance consultant provide you quotations from multiple vendors before choosing a plan.
Aaron Skloff, Accredited Investment Fiduciary (AIF), Chartered Financial Analyst (CFA) charter holder, Master of Business Administration (MBA), is the Chief Executive Officer of Skloff Financial Group, a Registered Investment Advisory firm. The firm specializes in financial planning and investment management services for high net worth individuals and benefits for small to middle sized companies. He can be contacted at www.skloff.com or 908-464-3060.
