Employers and Small Business Owners Can Offer Long Term Care Coverage As An Employee Benefit

Long-term care insurance may be one of the newest and fastest growing employee benefits. There are tax incentives to employers for purchasing long-term care insurance on behalf of their employees. Employers can pay for all the coverage, part of the coverage, or have employees pay all the cost. Typically employers are willing to fund part of the plan and then allow the employees to purchase additional coverage if they wish. The insurance is totally portable should the employee leave the company.

For the small business owner, long term care benefits offered through their business can be a great way to utilize business dollars to protect personal assets. Professional practices and businesses generating significant cash periodically find long term care benefits useful in tax planning.

Tax Benefits For Business Owners

Recent health care legislation makes qualified LTC insurance policies more tax advantageous for both employers and employees. Employers that pay for long-term care insurance may be eligible for favorable tax treatment. However, the exact tax consequences vary depending on the structure of the business (example: sole proprietor, partnership, LLC, C-Corporation, etc.).

Employer-paid LTC premiums for employee, spouse, and retiree coverage may be deducted as a business expense
Business owners can use business dollars to protect future personal assets
Employers can cover defined classes of workers, making it possible to offer the benefit to only higher-paid employees, such as an executive carve-out
Employees with medical and dental expenses exceeding 7.5% of adjusted gross income may be able to also deduct eligible LTC premiums they pay
Premiums are not classified as taxable income to employees
Benefits are not considered taxable income to the insureds and their families (even if the employer paid the premium)
Benefits are 100% tax-free to the employees whether the employee or the employer pays the premium
Premiums currently cannot be included in a Section 125 “cafeteria” plan

Advantages For Employees

When an employer offers long-term care insurance to their employees it helps provide the following benefits:

Financial security, responsibility and freedom
Preserve retirement accounts and savings
Ability to keep job
Employer-paid premiums not taxable as income
Employee-paid premiums may be deductible as a medical expense
Long-term care benefits are not taxable
The coverage is fully portable
Ability to receive high quality care for themselves and their families