2025 Federal Tax breaks for Long-Term Care Insurance

Employers fall into 3 categories (as per Mutual of Omaha’s attached Business Owners Guide):

• Those, such as C-Corporations, which pay income tax directly to the Federal government. Professional Corporations, Personal Service Corporations and LLCs can choose to be taxed in this fashion.

• Pass-Through entities do NOT pay income taxes directly to the Federal government. Instead, they report their earnings to their owners; if someone owns 37% of the company, 37% of the earnings are reported to that owner. The owner includes the income in the owner’s personal tax return. Pass-through entities include S-Corps, sole proprietors, Partnerships, many limited liability corporations, many Professional Corps, many Personal Service Corporations, etc.

• Non-profit employees are taxed the same as employees of a C-Corporation. But, the non-profit does not enjoy a tax break unless some portion of the premium is expensed through a for-profit subsidiary.

Employers fully deduct their entire LTCi premium for employees and employees’ tax dependents. The employee incurs NO imputed taxable income when the premium is paid (unless they are considered to be an owner of a pass-through entity) and NO taxable income when benefits are received. In addition to this great "triple play", employers do NOT need to provide the same program for all employees. Many programs cover only owner-employees (or key executives) and their spouses. Also, payroll taxes don't apply to LTCi premiums and exposure to "excess income" tax is reduced. The tax deduction can reduce the net cost by 1/3 or more.

Pass-through entities have the same situation as C-Corps, except the tax break is capped for owners (any partner; LLC; sole proprietor; 2%-or-more owner in an S-Corporation). The business takes a full deduction, just like a C-Corp. The full amount is reported as imputed income only to owners, who then deduct the amount indicated below as a self-employed health insurance deduction (line 17 of Schedule 1). For employees who are non-owners, the rules are the same as for C-Corps.
Age at end of tax year 2025 Limitation Per Person* Jump in the Limitation as age changes
40 or less $480
41 or more, but not yet 51 $900 87%
51 or more, but not yet 61 $1800 100%
61 or more, but not yet 71 $4810 167%
71 or more $6020 25%
*Applies to tax-qualified LTCi policies for tax years ending in 2025 (under §213(d)(10)), except those paid by a non-profit employer or a for-profit employer which pays income taxes directly to the Federal government or a pass-through entity on behalf of a non-owner. Benefits in excess of both the incurred qualified expenses and $420/day are taxable, per IRS Rev Proc 2024-40, pp. 15-16

The limitation applies SEPARATELY for each spouse. A 63-year-old and 58-year-old couple has $4,810 and $1,800 caps respectively in 2025, which can total $6,610. In addition to increasing when people reach age 41, 51, 61 and 71 (by the percentages shown above), these amounts are indexed, which has resulted in increases of ~3%/year. In 2028, when the 58-year-old will be 61 years old, the deductions (assuming a 3% index) will have increased to $5,256 for each, which can total $10,512. As you can see, the tax break can grow significantly in just a few years.

BackNine’s revolutionary Quote & Apply software shows stand-alone (traditional) LTCi side-by-side with linked-benefit LTCi coverage and life insurance with a rider. If you don’t already have a Quote & Apply website, click here,Mutual of Omaha tax guide for employers then click here to schedule a meeting with Claude Thau so he can help you customize it.