What Is Form 1099-LTC for Long-Term Care Insurance Benefits?
Companies or agencies that pay policyholders long-term care (LTC) or accelerated death benefits will send 1099-LTC to the IRS. Policyholders who got benefits will also be sent a 1099-LTC form to report the payments received when they file a federal tax return.
Information included on a 1099-LTC covers the gross LTC and accelerated death benefits paid to the policyholder, the amount of taxable benefits, and the policyholder’s name, address, and Social Security number.
What Long-Term Care Benefit Payments are Reported on 1099-LTC?
Accelerated Death Benefits
Life insurance policies that include an accelerated death benefit allocate a partial amount of a death benefit when an individual has been diagnosed with a chronic illness or terminal illness.
Chronic illnesses must be severe enough to require long-term care. Individuals with a terminal disease must have a professional diagnosis of living between 12 and 24 months. Accelerated death benefits pay for any expenses associated with the chronic or terminal condition.
Qualified Long-Term Care Insurance Contract Payments
A Qualified Long-Term Care Insurance Contract adheres to federal guidelines established by HIPAA in 1996. It is a “guaranteed renewable” policy, meaning the insurance contract can be canceled only for nonpayment of premiums.
Coverage provided by LTC insurance can include home health care, assistance with daily activities (ADLs), and nursing home care. To be eligible for qualified long-term care insurance contract payments, policyholders must prove they are chronically ill and need such care as a licensed medical doctor prescribes.
How Much Can You Receive for Long-Term Care Benefits Without Having to Pay Taxes?
Per Diem (Per Day) Payments
The per diem limit for 2024 is $420. If you receive more than $420 daily from a long-term-care benefit insurance policy, you must report the excess amount on your federal tax return as taxable income.
Actual Expense Payments
Benefits considered reimbursements for long-term care expenses are not generally taxable if the benefits do not exceed the cost of the care. However, the reimbursements must qualify as long-term care expenses to be tax-free.
Examples of long-term care expenses include essential therapeutic and diagnostic services, assistance with ADLs, and personal care services.
What’s the Tax Rate for Long-Term Care Benefits When You Exceed the Daily Limit?
Taxable benefits that exceed limits are added to your regular income and taxed at the marginal rate for your filing status and total taxable income amount.
For example, if you receive a per diem benefit of $500 and the daily limit is $420, your taxable excess benefit amount is $80 per day. For a full year, this is $29,200 that you add to your taxable income when you file your 1040.
Now, if you only receive Social Security and your SSI amount’s less than what is required to file a 1040, then you will just pay tax on your excess LTC per diem.
The IRS marginal tax rates for 2024 are:
- 10% for single filers with incomes less than $11,600
- 12% for single filers with incomes over $11,600
- 12% for married couples filing jointly with incomes over $23,200
- 22% for single filers with incomes over $47,150
- 22% for married couples filing jointly with incomes over $94,300
- 24% for single filers with incomes over $100,525
- 24% for married couples filing jointly with incomes over $201,050
How Does the IRS Tax Accelerated Death Benefits?
Policyholders who are terminally ill with less than two years to live receive tax-free accelerated death benefits. Policyholders who are chronically ill may have to pay taxes on accelerated benefits that exceed the daily limit.
In addition to tax implications, accelerated death benefits can impact eligibility for SSI or Medicaid.
How Do You Report 1099-LTC on a 1040 Tax Return?
Your 1099-LTC taxable income amount from long-term care and accelerated death benefits must be included as “other income” on Schedule 1 line 8z.
Schedule 1 for Form 1040 is used to report “additional income and adjustments to income.”
If You Can’t Pay the Taxes on Your Long-Term Care or Accelerated Death Benefits, How Can The IRS Help?
The IRS does not offer tax payment programs specific to just long-term care or accelerated death benefits. However, if you owe the IRS taxes for benefits received and cannot pay, you may qualify for tax relief programs such as installment agreements (monthly payment) or Offer in Compromise (reduce amount you owe IRS).
If you are unable to make any tax payments, even with relief, the IRS can pause collections until you can pay. In all these cases, interest will continue to be added to your balance until it is paid off.
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