When Can an Employer Deduct Long-Term Care Premiums?

An employer can deduct long-term care insurance premiums it pays on behalf of a W-2 employee in full, with no age-based cap, as long as the policy is a qualified long-term care contract under IRC Section 7702B. The same full deduction applies when a C-corporation pays premiums for an owner-employee. The rules tighten for other business structures: S-corporation shareholders who own more than 2%, partners (including LLC members taxed as partnerships), and sole proprietors are limited to age-based dollar caps that can leave a large share of the premium nondeductible.

The Policy Has to Be Qualified First

None of the favorable tax treatment applies unless the underlying policy qualifies under IRC Section 7702B. A qualifying contract covers only long-term care services for someone certified as chronically ill, is guaranteed renewable, cannot build cash value, and cannot be borrowed against or pledged as collateral. Any premium refunds or dividends have to reduce future premiums or increase future benefits rather than pay out as cash. The contract also has to satisfy consumer protection requirements drawn from the NAIC model regulations.¹

If a contract fails any of these tests, the employer’s payment becomes taxable compensation to the employee and the favorable treatment below disappears. Most reputable insurers market their products as “tax-qualified,” but confirm the classification before assuming any deduction.

W-2 Employees: Full Deduction, No Age Cap

Premiums an employer pays for qualified long-term care coverage on a W-2 employee are 100% deductible as an ordinary and necessary business expense.² The age-based limits that restrict self-employed individuals do not apply. Pay $3,000 in annual premium for a 45-year-old employee and the business deducts $3,000.

The employee side is equally clean. Premiums are excluded from gross income under IRC Section 106, do not appear in Box 1 of the W-2, and are exempt from Social Security and Medicare taxes.³ The exclusion also covers premiums paid for the employee’s spouse and dependents. The IRS specifically instructs employers not to report long-term care coverage in Box 12, Code DD.⁴

The only real limit is the general reasonable-compensation test: the premium plus other pay has to be reasonable for the work performed. There is no nondiscrimination rule forcing an employer to cover everyone. A company can offer long-term care coverage only to executives or select key personnel without losing the deduction.

C-Corporation Owner-Employees

Owner-employees of C-corporations get the same treatment as any other W-2 employee. The corporation deducts the full premium; the owner excludes it from income. The age-based caps do not apply, because the owner is a common-law employee of the corporation for tax purposes.³ The corporation can cover the owner alone without extending coverage to other employees. For owners weighing entity choice, this is a real advantage of the C-corp structure.

S-Corp Shareholders Over 2%, Partners, and Sole Proprietors

Once you step outside the W-2 and C-corp world, the picture changes. The business can still pay premiums and take a deduction on its side, but the individual’s tax treatment shifts, and the amount that ultimately gets deducted is capped by age.

S-Corporation Shareholders Over 2%

When an S-corporation pays long-term care premiums for a shareholder-employee who owns more than 2%, the premium is included in the shareholder’s W-2 as wages in Box 1. It stays out of Boxes 3 and 5, so no Social Security or Medicare tax applies.⁵ The shareholder then claims the self-employed health insurance deduction on Schedule 1, but only up to the age-based annual limit. The deduction requires that the S-corp established the coverage and that the shareholder is not eligible for a subsidized long-term care plan through a spouse’s employer or another source.

Partners and LLC Members

Premiums paid by a partnership on behalf of a partner are treated as guaranteed payments. The partnership deducts them; the partner includes them in gross income and then claims the self-employed health insurance deduction on Schedule 1, subject to the same age caps.⁶ If the partnership treats the premium as a distribution reduction rather than a guaranteed payment, it loses its deduction entirely.

Sole Proprietors

Sole proprietors pay the premium through the business, report it as part of net earnings, and take the self-employed health insurance deduction on Schedule 1 up to the age-based cap. Net self-employment earnings from the business are required, and the deduction is unavailable for any month the sole proprietor could participate in a subsidized plan through a spouse’s employer.⁷

2026 Age-Based Premium Deduction Limits

The caps that govern S-corp shareholders over 2%, partners, and sole proprietors are adjusted annually. They represent the maximum long-term care premium that counts as a deductible medical expense for the year, determined by age as of December 31.⁸ For 2026, the per-person limits are:

Age 40 or younger: $500
Age 41 to 50: $930
Age 51 to 60: $1,860
Age 61 to 70: $4,960
Age 71 or older: $6,200

The caps apply per individual. In a married couple where both spouses are covered, each gets a limit based on their own age. A 55-year-old partner paying $4,000 in annual premium deducts $1,860 and eats the remaining $2,140. A W-2 employee of the same age whose employer pays the same $4,000 has the whole amount deducted by the employer and pays no tax on any of it.

Anyone who itemizes rather than using the self-employed health insurance deduction can include qualified long-term care premiums up to these same caps as medical expenses on Schedule A. Only total medical expenses above 7.5% of adjusted gross income count, so the self-employed health insurance deduction is usually the better route when it is available.⁹

Cafeteria Plans and FSAs Don’t Work; HSAs Partly Do

Long-term care insurance cannot be run through a Section 125 cafeteria plan. The tax code explicitly excludes it from the definition of a qualified benefit, and any product marketed as long-term care insurance is disqualified.¹⁰ Flexible spending accounts are off-limits for the same reason. Employer-provided long-term care coverage delivered through an FSA is included in the employee’s gross income rather than excluded.³

Health savings accounts are the exception. HSA funds can pay qualified long-term care premiums, but tax-free withdrawals are capped at the same age-based limits above. A 50-year-old account holder can withdraw up to $930 tax-free in 2026; any amount above that is a non-qualified distribution.

Hybrid Life Insurance Policies With LTC Riders

Many newer policies combine life insurance with a long-term care rider rather than offering standalone coverage. If the long-term care portion independently qualifies under Section 7702B, the premium allocated to that rider gets the same employer deduction as a standalone qualified policy and is excluded from the employee’s income. The life insurance portion follows different rules and is generally taxable to the employee as compensation when the employer pays it. Employers offering hybrid coverage need to track the split between the two components carefully. For C-corp shareholder-employees, hybrid products with strong LTC riders can be especially attractive, because the LTC portion is fully deductible to the corporation without any age cap.

1
Office of the Law Revision Counsel. 26 U.S. Code 7702B – Treatment of Qualified Long-Term Care Insurance
2
Office of the Law Revision Counsel. 26 U.S. Code 162 – Trade or Business Expenses
3
Office of the Law Revision Counsel. 26 U.S. Code 106 – Contributions by Employer to Accident and Health Plans
4
Internal Revenue Service. Form W-2 Reporting of Employer-Sponsored Health Coverage
5
Internal Revenue Service. S Corporation Compensation and Medical Insurance Issues
6
Internal Revenue Service. Publication 541 (12/2025), Partnerships
7
Internal Revenue Service. Form 7206 – Self-Employed Health Insurance Deduction
8
Office of the Law Revision Counsel. 26 USC 213 – Medical, Dental, Etc., Expenses
9
Internal Revenue Service. IRS Courseware – Link and Learn Taxes – Eligible Long-Term Care Premium Limits
10
Office of the Law Revision Counsel. 26 U.S. Code 125 – Cafeteria Plans