Form 1099-LTC is an information return an insurance company or a viatical settlement provider sends you and the IRS after paying out long-term care benefits or accelerated death benefits during the year. Receiving one does not mean you owe tax. In the large majority of cases the money reported on it is excluded from income entirely, and the form exists so the IRS can match your exclusion against what the payer reported.
It arrives with the January and February mail, usually with no explanation attached, and it is frequently the first piece of paper that tells an adult child their parent received a benefit at all. People react in two wrong directions: some ignore it, which generates an IRS notice months later, and some assume the whole amount is taxable and pay tax they do not owe.
Work through the checks below in order. Each one takes a minute and eliminates a category of error. Pine Lake Legacy provides education and a free policy review only; we do not prepare returns and nothing here is tax advice.
In This Article
- Check 1: Confirm Who Sent It and Why
- Check 2: Read Boxes 1 Through 3 Before Anything Else
- Check 3: Read Boxes 4 and 5, the Ones Everyone Skips
- Check 4: Match the Form to Form 8853 and Your Records
- Check 5: Do Not Confuse It With These Four Forms
- What the Form Tells You About Your Remaining Policy
- Frequently Asked Questions
Check 1: Confirm Who Sent It and Why
Look at the payer name in the top left. Three kinds of companies issue this form, and knowing which one you are dealing with determines everything downstream.
A long-term care insurance carrier paying benefits under a stand-alone long-term care policy or a long-term care rider on a life policy. This is the most common source.
A life insurance carrier paying an accelerated death benefit on a policy where the insured was certified terminally or chronically ill. Payments made under an accelerated death benefit provision are reported here rather than on a Form 1099-R.
A viatical settlement provider. This is the one almost nobody expects. When a terminally or chronically ill insured sells a policy to a licensed viatical settlement provider, the provider reports the payment on Form 1099-LTC, because the tax code treats that sale as an amount paid by reason of death. An ordinary life settlement by an insured who is not ill is a different transaction entirely and is generally reported on a Form 1099-B or 1099-MISC instead, with a different tax result. If you sold a policy last year and a 1099-LTC arrived, that tells you the buyer treated the transaction as a viatical settlement.
Payers are generally required to furnish the recipient copy by January 31 and to file with the IRS by the end of February on paper or by the end of March electronically. If you believe you received benefits and no form arrived, call the payer before assuming there is nothing to report.
Check 2: Read Boxes 1 Through 3 Before Anything Else
The form is small and every box changes the analysis.
Box 1, Gross long-term care benefits paid. The total the payer paid during the calendar year under a long-term care insurance contract.
Box 2, Accelerated death benefits paid. The total paid under an accelerated death benefit provision or by a viatical settlement provider. Money can appear in box 1 or box 2 but is not double counted.
Box 3, Per diem or Reimbursed amount. This checkbox is the single most consequential mark on the form. If the payer checked Reimbursed amount, the benefits were paid against documented care expenses and the analysis is usually simple. If the payer checked Per diem, the benefits were paid as a flat daily or monthly amount without regard to actual costs, and an indexed daily cap applies. That cap has been in the range of roughly $400 to $420 per day in recent years and changes annually; confirm the figure for your tax year with the IRS revenue procedure or your CPA.
Under a per diem contract, the excluded amount is the greater of the daily cap for the number of days of care, or your actual unreimbursed qualified long-term care costs. Anything above that is taxable. Under a reimbursement contract, benefits that do not exceed the costs incurred are generally excluded without any cap at all.
Check 3: Read Boxes 4 and 5, the Ones Everyone Skips
Box 4, Qualified contract. If this box is checked, the payer is telling you the contract is a qualified long-term care insurance contract under section 7702B of the Internal Revenue Code. Contracts issued after 1996 generally have to meet those requirements. Older contracts issued before 1997 are commonly grandfathered and treated as qualified even though they were never written to the standard. If box 4 is blank on a policy issued in the 1990s or later, ask the carrier why in writing before filing.
Box 5, Chronically ill or Terminally ill, and the date certified. This tells you which branch of the tax rules applies. Terminally ill means a physician certified death reasonably expected within 24 months of the certification. Chronically ill means a licensed health care practitioner certified inability to perform at least two of the six activities of daily living for at least 90 days, or severe cognitive impairment requiring substantial supervision. The six activities are eating, toileting, transferring, bathing, dressing and continence.
The date matters. A chronic illness certification is generally required to have been made within the preceding 12 months, which is why families in multi-year claims get asked for a fresh practitioner statement each year. A missed recertification can interrupt an otherwise valid claim, and the interruption shows up here.
| Box | What it reports | What to do about it |
|---|---|---|
| Box 1 | Gross long-term care benefits paid | Carry to Form 8853, long-term care section |
| Box 2 | Accelerated death benefits paid | Identify whether the payer was a carrier or a viatical provider |
| Box 3 | Per diem or reimbursed amount | Per diem triggers the indexed daily cap; reimbursement usually does not |
| Box 4 | Qualified contract under section 7702B | If blank on a post-1996 contract, ask the carrier why |
| Box 5 | Chronically or terminally ill, plus certification date | Confirm the certification is within the required 12-month window |
Check 4: Match the Form to Form 8853 and Your Records
The reconciliation happens on IRS Form 8853, Archer MSAs and Long-Term Care Insurance Contracts, in the section covering long-term care insurance contracts. That section is where you report the gross benefits, state the number of days of qualified care, claim the per diem exclusion or the actual-cost exclusion, and arrive at any taxable remainder. A taxable remainder flows through to the return as other income.
Before your preparer can complete it, assemble four things. First, the 1099-LTC itself. Second, a count of the days during the year the insured received qualified long-term care services. Third, invoices or statements showing what was actually paid for that care, including amounts paid by family members out of pocket. Fourth, the practitioner certification and its date.
Two practical notes. If more than one person was paid on the same insured, for instance a spouse and an adult child both receiving reimbursements, the per diem cap is applied to the insured, not to each recipient, so the filings have to be coordinated. And if the amount in box 1 looks wrong, the fix is a corrected form from the payer, not an adjustment on your return; ask the payer for a corrected 1099-LTC in writing and keep the request.
Check 5: Do Not Confuse It With These Four Forms
Form 1099-R. Reports distributions from retirement plans and annuities, and also from a life insurance policy surrender where gain exists. If you surrendered a policy for its cash value, you should see a 1099-R, not a 1099-LTC. Our explainer on how cash surrender value works covers what triggers gain.
Form 1099-LS and Form 1099-SB. These two exist because of the reportable policy sale rules added by the 2017 tax law. A buyer of a life insurance policy files a 1099-LS reporting what it paid the seller, and the issuing carrier files a 1099-SB reporting the seller’s investment in the contract. If you sold a policy and you are not terminally or chronically ill, these are the forms to expect rather than a 1099-LTC.
Form 1099-MISC. Occasionally used for settlement proceeds that do not fit elsewhere. If one arrives for a policy sale, hand it to your CPA alongside any 1099-LS you received.
Form 712. Not an income tax form at all. It is the carrier’s statement of policy value used on federal estate and gift tax returns. See what IRS Form 712 reports for the difference.
What the Form Tells You About Your Remaining Policy
A 1099-LTC is a receipt for something that already happened, so it does not create a decision by itself. But it does hand you two facts worth acting on.
First, if box 2 shows accelerated death benefits, the death benefit on that policy has been reduced, often by more than the cash you received if the carrier used a discount or a lien. Ask the carrier for a current in-force illustration showing the remaining death benefit, the remaining cash value, and the premium required to carry the policy to maturity. Households are regularly surprised to find the remaining policy now needs a larger premium than before.
Second, if a viatical settlement provider issued the form, the policy is gone and the premium obligation ended at closing. Nothing further is owed and no further form should arrive for that contract.
If a rider claim has left you holding a smaller policy with a premium you cannot sustain, the honest options are to reduce the face amount, use a nonforfeiture option such as reduced paid-up coverage, let it lapse, or find out whether the remaining death benefit still has market value. Read how lapsing, surrendering and selling compare before choosing. Pine Lake Legacy will review the policy cover page at no cost and with no obligation at (732) 978-9575. For the tax treatment of anything on this form, work with your own CPA, and for benefit questions contact your State Health Insurance Assistance Program.
Frequently Asked Questions
Does a 1099-LTC mean I owe tax?
Usually not. Most long-term care benefits and accelerated death benefits are excluded from income. The form is an information return so the IRS can match what the payer reported against the exclusion you claim on Form 8853. Give it to your preparer even when you are confident nothing is taxable, because ignoring it commonly triggers a notice.
Why did a viatical settlement provider send me one?
Because the tax code treats the sale of a policy by a terminally or chronically ill insured to a licensed viatical settlement provider as an amount paid by reason of death. That is why it is reported here instead of as a capital transaction. An ordinary life settlement by an insured who is not ill is reported on different forms with a different result.
What is the per diem limit and where do I find it?
It is an indexed daily cap that applies only to benefits paid on a per diem or periodic basis rather than as reimbursement of actual costs. It has run roughly in the $400 to $420 per day range in recent years and is adjusted annually. Confirm the exact figure for your tax year with the IRS revenue procedure or your CPA.
What if the amount on the form is wrong?
Contact the payer in writing and request a corrected Form 1099-LTC rather than adjusting the figure yourself on your return. Keep a copy of the request. If the corrected form does not arrive before the filing deadline, ask your preparer about filing an extension so the return matches what the IRS ultimately receives.
Do I still file Form 8853 if none of it is taxable?
In most cases yes. The form is how you claim the exclusion and show the IRS why the reported amount is not income. Skipping it while a 1099-LTC sits in the IRS matching system is one of the most reliable ways to receive an automated notice a year later. Ask your preparer to include it.
Does this form affect Medicaid eligibility?
Possibly, but not through the form itself. What matters is whether the money received is still sitting in an account on the date eligibility is measured, since retained cash is generally a countable resource. Ask your elder law attorney or your state Medicaid agency how the specific payment is treated in your state before spending or moving it.
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Related Reading
- What Is A 101G Rider
- What Is A 7702B Rider
- What Is Irs Form 712
- What Is Cash Surrender Value
- Lapse Vs Surrender Vs Settlement
- What Is A Viatical Settlement
- What Is An Ltc Benefit Trigger
- Ltc Hybrid Vs Life Settlement
Pine Lake Legacy does not purchase life insurance policies and does not provide legal, tax, or investment advice. Information provided is for educational purposes only. Eligibility for any option, including life settlements, is not guaranteed and depends on individual circumstances, policy terms, underwriting, and market conditions. Consult independent legal, tax, or financial professionals before making decisions regarding a life insurance policy.