Taxation of Long Term Care Insurance (LTCI) Policies. The IRS can never get enough of our money, right?
But the rules that apply to LTCI provide some good and some great tax treatment.
Benefits checks paid out are always tax free for Qualified Plans (which are about the only kinds available, now.) So, in a typical example, a 55 year old may put in $15,000 over the next 30 years and would have $250,000 to use for care. For 70% of us that’s $235,000 of tax free income!
Premium Payments for LTCI for individuals are deductible but subject to the 7.5% rule. However, more of the premium becomes deductible based on age.
Premium Payments for an LLC or partnership are deductible subject to the 7.5% rule
Premium payments for a C Corporation are fully deductible as an employee benefit.
Here’s the best scenario of all. If your employer provides access to a 401K plan, that un-taxed money can be used to pay for LTCI. When the time comes to use the policy, that money comes out is tax free! How many other plans provide for non-taxable income. What a country!!!
The link provides a more in-depth view of taxation for Long Term Care Insurance.
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