Form 1099-LTC: Per Diem Taxable Amounts and Form 8853 Reporting

Most benefits reported on Form 1099-LTC are not taxable. If your policy is a reimbursement contract and payments did not exceed your actual care costs, none of it is income. If your policy pays a fixed per diem, benefits are tax-free up to an IRS daily limit ($430 per day for 2026), and anything above that cap can still be offset by your unreimbursed care expenses. You only owe tax when per diem payments exceed the cap and your out-of-pocket care costs do not close the gap.

What the Form Is Telling You

Insurance companies, government agencies, and viatical settlement providers issue Form 1099-LTC whenever they pay long-term care benefits or accelerated death benefits during the year. Both you and the IRS get a copy. The insurer is not required to figure out how much, if any, is taxable — that job is yours.¹

Four boxes drive the analysis:

Box 1 shows the gross long-term care benefits paid during the year, whether the money went to you, to the insured, or directly to a facility.
Box 2 shows accelerated death benefits paid from a life insurance policy before the insured’s death.
Box 3 indicates whether the contract pays on a per diem (indemnity) basis or a reimbursement basis. This one box decides which set of rules applies to you.
Box 4 confirms whether the insured was certified as chronically ill, which is the prerequisite for excluding most benefits from income.

A Policyholder Statement comes with the form and lists the services received and the dates of care.² Hold onto it; you will need those dates to run the per diem calculation.

Reimbursement Contracts vs. Per Diem Contracts

The single biggest factor in whether you owe tax is which type of qualified long-term care contract you have under IRC 7702B.³

A reimbursement contract pays you back for actual long-term care expenses up to your policy limit. You submit invoices, the insurer verifies them, and you get reimbursed. Because the benefit can never exceed what you actually spent, reimbursement benefits are generally excluded from gross income in full. If Box 3 marks your contract as reimbursement and the amount paid did not exceed your documented care costs, there is nothing to report as taxable.

A per diem contract, sometimes called an indemnity contract, pays a fixed daily or monthly amount once the insured meets the chronic illness triggers, regardless of what care actually costs that day. If the policy pays $600 a day and care runs $350, you still get $600. The gap between the fixed payment and the IRS daily cap is where taxes can appear.

Calculating the Taxable Portion of Per Diem Benefits

For 2026, the IRS per diem exclusion is $430 per day.³ If your policy pays $430 a day or less, the exclusion covers everything and no calculation is needed. The math only matters when your daily benefit runs higher.

Here is how the calculation works:

Multiply $430 by the number of days the insured was certified as chronically ill during the year. A full year would be $430 × 365 = $156,950.
Subtract that amount from your total per diem benefits. If the policy paid $182,500, the excess is $25,550.
Subtract any unreimbursed qualified long-term care expenses you actually paid. If you spent $10,000 out of pocket on care, the excess drops to $15,550.
Whatever is left is your taxable benefit.

The third step is the one people miss. Actual care expenses act as a second layer of protection and can wipe out the excess entirely. If your out-of-pocket costs equal or exceed the amount above the daily cap, you owe nothing even though the daily benefit exceeded $430.⁴

Filing for a prior year? Use the limit that was in effect for that tax year. The per diem cap was $410 in 2024 and $420 in 2025.⁵

Reporting on Form 8853

Per diem benefits under a qualified long-term care contract are calculated and reported in Section C of Form 8853, not directly on Form 1040.⁶ The lines that matter in Section C:

Line 20: total per diem payments received during the year.
Line 21: number of days in the long-term care period.
Line 22: your qualified long-term care services costs.
Line 24: reimbursements received or expected for those services.
Line 25: your share of the per diem limitation.
Line 26: the taxable amount, which flows to Schedule 1 (Form 1040), line 8e.⁷

If the insured had more than one long-term care period during the year, complete a separate Section C for each period.⁶

When More Than One Person Receives Payments for the Same Insured

The daily exclusion applies per insured, not per recipient. When multiple payees receive per diem benefits for the same insured individual, they share the single $430-per-day cap. Each recipient files their own Form 8853 and attaches an aggregate computation statement showing how the limit was divided. The instructions allocate the cap first to the insured, then to the insured’s spouse if filing jointly, with any remainder split proportionally among other recipients based on payments received.⁶

When the Policyholder Is Not the Insured

The insurer sends the 1099-LTC to the policyholder even when payments went to the insured or to a third party like a nursing home.¹ The insured also gets a copy. If you own a policy on a parent, for example, the form comes to you, and you and the insured have to coordinate to properly allocate the per diem limit on Form 8853.

Accelerated Death Benefits (Box 2)

Some life insurance policies let the insured collect part of the death benefit early. Those payments show up in Box 2, and the tax treatment turns on the insured’s health status.

If a physician has certified the insured as terminally ill, meaning the condition can reasonably be expected to result in death within 24 months, the entire accelerated death benefit is excluded from gross income with no dollar cap.⁸ The payment is treated as though it were a tax-free life insurance death benefit.⁹

If the insured is certified as chronically ill rather than terminally ill, the accelerated death benefit follows the same rules as a regular long-term care benefit: $430-per-day cap, same calculation, same Form 8853. The source of the money is different, but the tax math is identical.

The Chronic Illness Certification

The exclusion for both regular LTC benefits and chronically-ill accelerated death benefits depends on the insured being certified by a licensed health care practitioner within the previous 12 months as meeting one of two tests:⁵

The individual cannot perform at least two activities of daily living (eating, toileting, transferring, bathing, dressing, continence) without substantial help from another person, and the limitation is expected to last at least 90 days.
The individual requires substantial supervision to protect against threats to health and safety due to severe cognitive impairment.

This is the certification reflected in Box 4. It has to be renewed; if the insured’s condition improves and they no longer meet either test, benefits paid after that point lose their tax-favored status.

Non-Qualified Contracts Are a Different Story

Everything above applies to qualified contracts under IRC 7702B. Most policies sold today are qualified, and the policy itself should include a disclosure confirming that.³ Non-qualified contracts, usually older policies issued before the tax code standards were fully established, do not get the same automatic exclusion, and there is no clear IRS per diem mechanism for them. Benefits may be partially or fully taxable, and working through the policy terms with a tax professional is the safer route. If your 1099-LTC reflects a non-qualified policy, do not assume the exclusion rules above apply.

Records to Keep, and What to Do If the Form Is Wrong

Documentation is what stands between a tax-free benefit and a taxable one, especially for per diem recipients:

Keep the 1099-LTC and the Policyholder Statement for every year benefits are paid. The statement’s dates of care back up the chronic illness certification.
Save every invoice, receipt, and billing statement for qualified long-term care services — home health aides, nursing facility charges, adult day care, and similar costs. Those unreimbursed expenses offset any per diem excess. Without documentation, the IRS can treat the entire excess as taxable.
Keep copies of the physician’s certification, with the date it was issued and the specific limitations or cognitive impairment documented.

If the 1099-LTC has an error (wrong amount, wrong contract type, missing information), contact the insurer and request a corrected form. If you already filed based on the original numbers and the correction changes them, file Form 1040-X to amend the return.¹⁰

1
Internal Revenue Service. Instructions for Form 1099-LTC (04/2025)
2
Internal Revenue Service. About Form 1099-LTC, Long Term Care and Accelerated Death Benefits
3
Office of the Law Revision Counsel. 26 USC 7702B – Treatment of Qualified Long-Term Care Insurance
4
Internal Revenue Service. Per Diem Payments Frequently Asked Questions
5
Internal Revenue Service. Publication 502 (2025), Medical and Dental Expenses
6
Internal Revenue Service. Instructions for Form 8853 (2025)
7
Internal Revenue Service. Form 8853 (2025)
8
Office of the Law Revision Counsel. 26 USC 101 – Certain Death Benefits
9
Internal Revenue Service. Form 1099-LTC (Rev. April 2025) – Instructions for Policyholder
10
Internal Revenue Service. What to Do When a W-2 or Form 1099 Is Missing or Incorrect