When a partnership pays for LTC coverage on its partners, it can deduct premiums that qualify as "guaranteed" payments under IRC Section 707(c). LTC premiums constitute guaranteed payments if they are paid for services rendered by the insureds in their capacity as partners, without regard to partnership income. Since partners are not employees, they cannot use IRC Section 106(a) to exclude from their gross income the LTC premiums paid by the partnership. Although partners must include the full amount of such premiums in their gross income, they can deduct a portion of the premiums paid. The "eligible" long-term care insurance premiums which are paid.
The amount that can be used in calculating the expense deduction is limited to the lesser of actual premium paid, or "eligible long term care premium." defined as follows:
| Attained Age before Close of Taxable Year |
Allowable Deduction for tax year 2009 |
(for 2008) | ||
| 40 or Younger | $320 | $310 | ||
| 41 through 50 | $600 | $580 | ||
| 51 through 60 | $1,190 | $1,150 | ||
| 61 through 70 | $3,180 | $3,080 | ||
| 71 and older | $3,980 | $3,850 | ||
The same rules that limit the deduction a sole proprietor can take for his or her long term care premiums also limit the premiums that a partner can deduct. Members in a limited liability company (LLC) taxed as a partnership, are subject to these same limitations.
If a spouse is a bona fide employee of a partnership or LLC, the same rules regarding deductibility and exclusion from gross income that are described in the section on Sole Proprietor apply.
Partnerships may generally deduct all premiums paid for employees, their spouses and dependents, retirees’, and retirees’ spouses.
Note: Before making tax decisions about long-term care insurance it is essential that you consult with your attorney, accountant, or other tax professional, for advice regarding your own personal situation.
