Would you please explain the tax incentives again?

Effective January 1, 1997, the Health Insurance Portability and Accountability Act of 1996 provided tax incentives to both individuals and employers to purchase long-term care insurance. The law clarifies that benefit payments more than $300 per day ($9000 per month) in 2011 are tax-free as long as they do not exceed the cost of care. For individuals, a portion of the long-term care insurance premium based on your age is counted as a medical expense. Medical expenses in excess of 7 ½% of your adjusted gross income are tax deductible. Employers have better long-term care insurance tax incentives. Owners of C-Corporations can deduct 100% of the premium on themselves and their spouses, including limited pay plans that pay the premium up in 10 or 20 years.

Self-employed business owners can deduct an age-based amount of long-term care insurance premium in the same category as health insurance ($340 < age 41; $640 < age 51; $1,270 < age 61; $3,390 < age 71; $4,240 age 71+). Employers of any kind will receive a tax deduction for 100% of any portion of LTC insurance premium paid, and neither the contributions nor the premium will be taxable income to employees. Alternatively, the age-based amount of premium can be paid with pre-tax dollars from a health savings account. All of these provisions are available only with tax-qualified policies. (Policies issued prior to January 1, 1997 are “grandfathered” which means you get all of these tax advantages automatically and are considered tax-qualified policies.) Ask your insurance professional to show you the statement that the policy is intended to be tax-qualified on the written literature about the benefits that he or she gives you.

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