Premiums and benefits for qualified long-term care insurance policies.

AuthorLerman, Jerry L.
PositionHealth Insurance Portability and Accountability Act of 1996

The Health Insurance Portability and Accountability Act of 1996 (HIPAA) provided favorable treatment of premiums and benefits for qualified long-term care insurance policies. The HIPAA added Sec. 7702B(a)(1), which generally treats a long-term care insurance contract as an accident and health insurance contract. Therefore, a corporation can deduct long-term care premiums under Sec. 162(a) as an ordinary and necessary business expense.

The dollar limits of long-term care insurance premiums addressed under Sec. 213(d)(10) apply only to individuals. Therefore, a corporation can deduct long-term care premiums without any dollar limit. In addition, under Sec. 106, an employee is not taxed on the fringe benefits.

The following examples illustrate the tax treatment and benefits for qualified long-term care insurance for tax year 2000 purchased by individuals, C and S corporations.

Example 1:I, a 65-year-old individual, purchases a qualified long-term care insurance policy with an annual premium of $3,000. He also has $5,000 of unreimbursed medical expenses and $50,000 of adjusted gross. income (AGI).

The deductible medical expenses threshold is 7.5% of AGI. In addition, qualified long-term care premiums are deductible as medical expenses subject to the following dollar limits based on an attained age before the close of the calendar year:

Eligible premium Age (2000 limit)(*) 40 or younger $220 41-50 $410 51-60 $820 61-70 $2,200 Older than 70 $2,750 (*) These amounts have increased every year since 1997. The amount that I can deduct as a medical expense deduction on Schedule A is computed as follows: Unreimbursed medical expenses $5,000 Qualified long-term care insurance premium 2,200 Total medical expenses 7,200 Less: 7.5% of AGI (3,750) Medical expense deduction $3,450 Example 2: The facts are the same as in Example 1, except a C...

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