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LTC premium: The tax pros and cons

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in Small Business Tax,Small Business Tax Deduction Strategies

Q. In your recent article on tax-free perks for executives, you didn’t mention long-term-care insurance. Are the premiums paid by a company exempt from income tax? H.A.D., Birmingham, Ala.

A. Yes. Long-term-care (LTC) insurance is tax-free to employees when the employer pays the premiums. Due to the relatively high cost of LTC premiums, many employers require employees to pay all or part of them. In that case, the employee can deduct a portion of the employee’s payments as a medical expense (subject to the usual limits) on his or her personal tax return. The tax law imposes specific limits based on the person’s age. Tip: For LTC coverage obtained through a flexible spending account or a cafeteria plan, the benefits are taxable to the employees.

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