1. For financial professional use only. Not for use with the public. Long-term care insurance is underwritten by John Hancock Life Insurance Company (U.S.A.), Boston, MA 02117 (not licensed in New York) and in New York by John Hancock Life & Health Insurance Company, Boston, MA 02117. LTC-3227 12/06 Rev. 1/14 The Tax Deductibility of Tax-Qualified Long-Term Care Insurance Premiums

2. Individual Deduction Itemized medical expenses (including LTC insurance premiums) Exceeds 10% of Adjusted Gross Income (AGI) –At age 65 or older, 7.5% of AGI Portion of LTC insurance premium limited to the Eligible LTC insurance Premium (seen on next slide) Includes Eligible LTC insurance Premiums paid for spouses and dependents [IRC 161(l)] Generally, benefits received from Tax-Qualified LTC insurance are excluded from gross income [IRC 7702B and 104(a)(3)]

3. Eligible LTC insurance Premiums 2014 Table 1 41 - 50 $700 40 or Younger $370 51 - 60 $1,400 61 - 70 $3,720 71 or Older $4,660 For taxpayers that itemize their deductions, eligible premiums can be included with their medical care expenses.

4. Individual Example Basic Information Age of Individual55 Adjusted Gross Income (AGI)$55,000 Medical Expenses (Excluding LTC insurance premium) $5,325 Annual Premium for Tax-Qualified LTC insurance policy $2,000 Calculating the Deduction Eligible LTC insurance Premium (From Table 1)$1,400 Total Medical Expenses$6,725 ($5,325 + $1,400) 7.5% of AGI$55,000 X 10% = $5,500 Medical Expenses exceeding 7.5% of AGI$1,225 ($6,725 - $5,500) Total Itemized Deduction$1,225

5. Self-Employed Individual Deduction Itemized medical expenses (including Eligible LTC insurance premiums) Portion of LTC insurance premium limited to the Eligible LTC insurance Premium Includes Eligible LTC insurance Premiums paid for spouses and dependents [IRC 161(l)] Not necessary to meet 10% (AGI) threshold Generally, benefits received from Tax-Qualified LTC insurance are excluded from gross income [IRC 7702B and 104(a)(3)]

6. Self-Employed Example Basic Information Age of Self-Employed Individual55 Gross Income$60,000 Annual Premium for Tax-Qualified LTC insurance Policy $2,000 Calculating the Deduction Eligible LTC insurance Premium (From Table 1) $1,400 Gross Income Less Deduction$58,600 ($60,000 - $1,400)

7. Partnership / Limited Liability Company (LLC) / Subchapter S Corp Treated as self-employed –Partners of a partnership –Members of LLC that is taxed as a partnership –Shareholders/employees of Subchapter S Corporations who own more than 2% of the outstanding or voting stock of S Corp The partnership, LLC, or Sub S Corp pays the LTC insurance premium –The partner, member or shareholder must include the LTC insurance premium in Adjusted Gross Income, but can deduct age based Eligible LTC insurance Premium –Not necessary to meet the 10% AGI threshold

8. Subchapter C Corporation A C Corporation purchasing a TQ LTC insurance policy on behalf of employee, his/her spouse or dependents –Deduct 100% of TQ LTC insurance premiums paid as a business expense –Not limited to the age-based LTC insurance premium amount from the table –The corporation can discriminate LTC insurance Premium excluded from employee’s Adjusted Gross Income 2% or less shareholder/employees of Subchapter S Corporation are treated as employees

9. Employer Paid Example Basic Information Premium Paid by Subchapter C Corporation $20,000 ($2,000 premium X 10 employees) Calculating the Deduction Total Business Expense Deduction$20,000 Calculating the Exclusion Amount Excluded from Each Employee’s Gross Income $2,000

10. Employer-Pay Contributory Arrangement on Behalf of an Employee If only a portion of the employee premium is paid by the employer –Employee may include the portion of the premium he/she pays (up to the age-based limits for Eligible LTC insurance Premium) with their itemized medical expenses Generally, benefits received under a TQ LTC insurance policy that was purchased by an individual will be excluded from gross income. Premiums paid by the employer are also excluded from gross income.

11. Partial Employer Pay Example Basic Information Age of Employee55 Adjusted Gross Income$55,000 Medical Expenses (Excluding LTC insurance premiums) $6,000 Premium Paid by Employee$1,500 ($2,000 - $500 ER paid) Calculating the Deduction Eligible LTC insurance Premium (From Table 1) $1,400 Total Medical Expenses$7,400 ($6,000 + $1,400) 10% of AGI$5,500 ($55,000 x 10%) Medical Expenses Exceeding 7.5% of AGI$1,900 ($7,400 - $5,500) Total Itemized Deduction$1,900 AGI Less Itemized Deduction$53,100 ($55,000 - $1,900)

12. Gift Tax Exclusion For 2014, annual $14,000 per donee Gift Tax Exclusion Donor has the ability to pay for the medical expenses of a donee Includes Tax-Qualified LTC insurance premiums Exclusion is subject to the age-based Eligible LTC insurance premium table

13. Gift Tax Exclusion Example Basic Information Annual Gift Tax Exclusion$14,000 Age of LTC insurance Policy recipient (Donee)55 Annual Premium for Tax-Qualified LTC insurance Policy (Paid by Donor) $1,500 Calculating the Exclusion Eligible LTC insurance Premium (from Table 1)$1,400 LTC insurance Premium Amount that Would Reduce the Annual Gift Tax Exclusion $100 ($1,500 - $1,400) Donor’s Reduced Annual Gift Tax Exclusion Amount $13,900 ($14,000 - $100)

14. HSA / HRA / Cafeteria Plans / FSA Health Savings Accounts (HSA) –LTC insurance premiums can be reimbursed through a HSA, tax free, up to the limits in the Eligible LTC insurance Premium table, even if offered through an employer provided Cafeteria Plan Health Reimbursement Accounts (HRA) –Reimbursement for LTC insurance premiums are allowable under an HRA. Although employers pay for HRAs, an HRA cannot be provided by salary reduction or through Cafeteria Plans Cafeteria Plans –LTC insurance policies cannot be purchased with pre-tax dollars under an employer-provided Cafeteria Plan Flexible Spending Accounts (FSA) –LTC insurance premiums cannot be reimbursed through an FSA

15. The Tax Deductibility of Tax-Qualified Long-Term Care Insurance (LTC insurance) Premiums Thank You! For financial professional use only. Not for use with the public. Long-term care insurance is underwritten by John Hancock Life Insurance Company (U.S.A.), Boston, MA 02117 (not licensed in New York) and in New York by John Hancock Life & Health Insurance Company, Boston, MA 02117. LTC-3227 12/06 Rev. 1/14