General Rules ~

1. Benefits are treated like accident and health insurance reimbursement for medical care and are generally excluded from income..

1. Benefits received on reimbursement basis are excluded from income without limit.
2. Benefits received on per diem, other periodic basis, or lump sum are excluded from income, subject to a maximum equal to the greater of $190/day or actual expenses incurred. Excess benefits are taxable income.
2. The maximum on per diem, periodic and lump sum benefits will be adjusted annually based on the medical cost component of the Consumer Price Index.
3. The rules apply whether premiums are paid by an individual, self-employed individual, or employer paid. If employer paid, the rules apply to employees, partners, S-corporation 2% or more shareholders, and LLC members.

Treatment of Qualified LTC - Individual

General Rules ~

1. LTC is considered accident and health insurance and premiums are treated as un-reimbursed medical expense (UME) for taxpayers that itemize deductions
2. LTC Premiums itemized as UME included premiums for an individual, their spouse, and their dependents.
3. LTC premiums itemized as UME are subject to the age-based Limitations below.
1. Age Based Limitations apply separately to each covered person (individual, spouse, and dependents).
2. Age Based Limitations will be adjusted annually based on the medical expense component of the Consumer Price Index.
4. The Individual may deduct the portion of total UME (including age based LTC premiums) exceeding 7.5% if Adjusted Gross Income (AGI).

Table 3

Age 40 or less	$220
41-50	$410
51-60	$820
61-70	$2,200
71 or older	$2,750

Treatment of Qualified LTC - Self-employed Individual

General Rules ~

• Option 1 - Premium is deductible based on the rules for individual purchase.
• Option 2 - Special Self-employed Rules
1. Self-employed can deduct, without regard to the 7.5% UME threshold, an amount equal to the age based LT premiums time the self-employed allowable percentage below.
2. Remaining age bsed LTC premium is deductible based on the rules for individual purchase.

Table 4

Year	% Deduction Allowable
1999-2001	60%
2002	70%
2003	100%

Example 1 - Joint Coverage

Treatment of Qualified LTC - Self-employed Individual

General Rules ~

• Employer
  1. LTC is considered accident and health insurance.
  2. The employer paid portion of LTC premiums is deductible as a general business expense:
  1. Including premiums for employees, their spouses and dependents.
  2. Even if the premiums exceeds the age based limitations.
  3. Even if coverage exceeds the per diem/periodic basis/lump sum limitation.
  4. Whether provided under a group plan, or individual policies.
  5. With no requirement to be provided on a non-discriminatory basis.
  6. With no maximum limit on the amount that may be deducted.
  3. The employer paid portion of LTC premiums is not deductible if the coverage is provided though cafeteria plan or flexible spending account.
• Employee
  1. The employer paid portion of the LTC premium is excluded from the employee's taxable income.
  2. The employee paid portion of the premium is deductible based on the rules for individual purchase.

Treatment of Qualified LTC -
Partnership, S-Corporation, Limited Liability Corporation (LLC)

General Rules ~

• Employer
  1. LTC is considered accident and health insurance.
  2. The employer paid portion of LTC premiums is deductible as a general business expense:
  1. Including premiums for partners, S-corporation shareholders of 2% or more, LLC members (owners), and spouses and dependents of the foregoing. Premium payment must be for services rendered and not based on the income of the organization.
  2. Including premiums for employees, their spouses and dependents.
  3. Even if the premiums exceeds the age based limitations.
  4. Even if coverage exceeds the per diem/periodic basis/lump sum limitation.
  5. Whether provided under a group plan, or individual policies.
  6. With no requirement to be provided on a non-discriminatory basis.
  7. With no maximum limit on the amount that may be deducted.
  3. The employer paid portion of LTC premiums is not deductible if the coverage is provided though cafeteria plan or flexible spending account.
• Employee
  1. The employer paid portion of the LTC premium is excluded from the employee's taxable income.
  2. The employee paid portion of the premium is deductible based on the rules for individual purchase.
• Partners, S-corporation Shareholders, and LLC Members
1. Partners, S-corporation shareholders, and LLC members are treated as self-employed and the income exclusion for employer provided LTC does not apply.
2. Premiums attributable to them and their spouses and dependents are included in their income and reported on their K-1.
3. The two options for self-employed individuals apply.

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