What is the federal income tax treatment for qualified long-term care (LTC) insurance premiums paid by an S corporation for an employee who is also an owner?

The correct answer reflects the tax treatment of qualified long-term care insurance premiums paid by an S corporation for an employee who is also an owner. In this case, the premiums can be fully deductible as a business expense for the S corporation, while also being excluded from the employee's taxable income. This highlights the unique nature of S corporations, where premiums paid for such insurance on behalf of an owner-employee are treated favorably under the Internal Revenue Code.

This favorable treatment allows the S corporation to deduct the premiums, thereby reducing its overall business income, while the employee-owner does not have to report the premiums as taxable income. The key point here is that as long as the policy is qualified and other IRS requirements are met, the entire amount paid for the qualified LTC insurance premiums can be 100 percent deductible. This incentivizes the offering of long-term care insurance within these corporate structures, providing benefits for both employers and employees.