The LTC per diem limit is the maximum daily amount a long-term care insurance policy can pay you tax free when it pays a flat daily benefit rather than reimbursing your actual bills. Pay above that ceiling is taxable income unless your documented care costs for the period were higher.
The rule lives at section 7702B(d) of the Internal Revenue Code and applies to periodic payments from a tax-qualified long-term care contract, and to accelerated death benefits paid to a chronically ill insured under section 101(g). The IRS indexes the figure for inflation each year. For 2025 it was $420 per day, roughly $153,300 annualized; the 2024 figure was $410. The 2026 amount appears in the IRS inflation-adjustment revenue procedure issued in the fall of 2025 and in the Form 8853 instructions — confirm the current number there or with your CPA before filing, because this is precisely the kind of figure that goes stale in published guidance.
The rest of this page is about whose interests that ceiling serves and who ends up paying for it, because the limit is not a neutral technicality. It shapes which policies are worth buying, which riders are worth exercising, and how a family should think about an accelerated benefit versus a policy sale.
In This Article
The Two Kinds Of Policy, And Why Only One Hits The Cap
Long-term care contracts pay in one of two ways, and the tax treatment diverges completely.
Reimbursement policies pay against submitted bills, up to a daily or monthly maximum. Because the benefit tracks actual qualified long-term care expenses, it is excluded from income without any per-diem ceiling. Submit a $520 daily bill on a policy with a $600 daily maximum and $520 comes out tax free, even though $520 exceeds the per diem limit. The cap does not apply to reimbursement of documented costs.
Indemnity or cash policies, sometimes called per diem policies, pay a flat amount for every day you meet the benefit trigger, regardless of what you spent. Nobody audits the receipts, which is the selling point — the money can pay a daughter to provide care, cover a home modification, or replace lost wages. That flexibility is exactly what the per diem limit restrains.
Check which one you own by reading the benefit provision on the policy schedule page. The words to look for are “reimbursement of actual charges” versus “cash benefit” or “indemnity.” Hybrid contracts sometimes contain both. If you cannot tell, ask the carrier in writing, because the answer determines whether the ceiling applies to you at all.
Who Benefits From The Cap
The Treasury benefits most directly. Without a ceiling, an indemnity contract would be a route to receive unlimited tax-free cash on a certification of chronic illness rather than on proof of expense. The cap sets a boundary on how much untaxed money can flow on a physician’s certification alone.
Policyholders with ordinary claims benefit indirectly. Because the per diem limit is indexed and sits above the national median cost of home care, most claimants never reach it. National cost-of-care surveys of the Genworth type have put median home health aide costs in the range of roughly $30 to $35 an hour in the mid-2020s, which even at eight hours a day lands under the daily ceiling in most markets. The cap disciplines large indemnity contracts without touching typical claims.
Carriers benefit from clarity. A carrier issuing a tax-qualified contract can tell a buyer, with reasonable confidence, how the benefit will be taxed. That predictability is part of why nearly all long-term care coverage sold since the late 1990s is tax-qualified.
Who Bears The Cost
Owners of large indemnity policies bear it first. Someone who bought a rich cash contract in the 1990s with an inflation rider can find the contractual daily benefit has grown past the per diem ceiling. Every dollar above the limit is taxable unless the actual care cost that year exceeded the limit and can be documented. The irony is direct: the buyer paid extra for the inflation rider and the tax code kept pace on a different schedule.
People stacking benefits bear it hardest. The per diem limit applies to the aggregate of all payments received for the same insured for the same period — two policies, or a policy plus a chronic-illness accelerated death benefit rider on a life insurance policy, are added together against a single ceiling. Families who assembled coverage over decades and never looked at the sum are the ones who get a surprise in the mail.
The paperwork burden falls on the claimant. Payers report benefits on Form 1099-LTC. The recipient reconciles them on Form 8853, Archer MSAs and Long-Term Care Insurance Contracts, filed with the individual return. If your benefits are within the limit or fully covered by documented costs, the form is where you show it. A 1099-LTC arriving with no Form 8853 filed is how a tax notice gets generated.
Keep the invoices. On a cash policy the receipts have no claims purpose, which is why nobody keeps them, and then they turn out to have a tax purpose.
| Payment type | Per diem cap applies? | What makes it tax free | Form |
|---|---|---|---|
| Reimbursement LTC policy | No | Payment tracks documented qualified expenses | 1099-LTC, reconciled on 8853 |
| Indemnity or cash LTC policy | Yes | Within the indexed daily limit, or documented costs | 1099-LTC, reconciled on 8853 |
| Chronic illness accelerated death benefit | Yes, aggregated with other coverage | Certification plus the indexed daily limit | 1099-LTC |
| Terminal illness accelerated death benefit | No | Certification of terminal illness under IRC 101(g) | 1099-LTC |
The Certification That Turns The Benefit On
Tax-free treatment requires the insured to be chronically ill within the statute’s meaning, and the definition is specific.
A chronically ill individual is someone a licensed health care practitioner has certified, within the preceding twelve months, as either unable to perform at least two of six activities of daily living without substantial assistance for a period expected to last at least 90 days, or as requiring substantial supervision to protect from threats to health and safety due to severe cognitive impairment. The six activities of daily living are eating, toileting, transferring, bathing, dressing and continence.
The twelve-month recertification requirement catches families off guard. A certification signed once at the start of a multi-year claim does not carry indefinitely for tax purposes; the practitioner has to certify within the preceding twelve months. Ask the carrier what it requires and keep a copy of every certification in the same folder as the 1099-LTC forms.
A separate and much more generous rule applies to the terminally ill. Accelerated death benefits paid to an insured certified as terminally ill — generally, reasonably expected to die within 24 months — are excluded from income under section 101(g) without any per diem ceiling. Same code section, different subsection, radically different result. See how accelerated death benefit riders work.
The Limits It Gets Confused With
Your policy’s own daily benefit maximum. That is a contract term set by the carrier. The per diem limit is a tax ceiling set by the IRS. They are different numbers and only one of them is indexed by Congress.
The LTC premium deduction limits. A separate, age-banded table caps how much of a tax-qualified LTC premium counts as a medical expense for itemized deduction purposes. That table has nothing to do with benefits received. People searching for “the LTC limit” find one and apply the other constantly.
The benefit trigger. The contractual condition for the policy to start paying. Many contracts define it identically to the tax definition, but not all do, and a contract can pay a benefit that is not fully tax free. See how benefit triggers work.
The elimination period. A waiting period, usually 30, 60 or 90 days, before benefits begin. It affects when money arrives, not how it is taxed.
Medicaid’s patient liability. A different program entirely, calculated on income rather than on insurance benefits.
How This Changes A Real Decision About An In-Force Policy
The per diem limit becomes a live consideration in exactly one household decision, and it is a common one: a person with declining health owns a life insurance policy with a chronic illness or long-term care rider, and is deciding whether to accelerate the death benefit or explore selling the policy.
Three points are worth putting side by side.
Accelerating on a chronic illness certification runs into the per diem cap. Rider payments count toward the same ceiling as LTC insurance benefits, in aggregate with any other coverage on the same insured. If the rider would pay more than the limit and your documented care costs are lower, the excess is taxable.
Accelerating on a terminal illness certification does not. The exclusion for the terminally ill has no per diem ceiling. If a physician will certify a life expectancy within 24 months, this is usually the cheapest route to cash available, and it costs no transaction fees.
Selling the policy is taxed on an entirely different scale. A life settlement is not a per-diem question at all. Gain up to cash surrender value is generally ordinary income and the excess is generally long-term capital gain, with basis measured by premiums paid. A viatical settlement for an insured certified as terminally ill can be excluded from income entirely; see how the viatical exclusion works.
The practical instruction: get the rider language and the projected rider payment in writing, take them to your CPA alongside your actual care costs, and compare against what the policy is worth in the market. Our page on a life settlement compared with a hybrid LTC policy covers the structural tradeoffs. For a free, no-obligation review of what a policy would fetch, send the cover page or call (732) 978-9575. Pine Lake Legacy provides education and reviews and does not give tax advice.
Frequently Asked Questions
What is the LTC per diem limit right now?
It was $420 per day for 2025 and $410 for 2024, indexed annually by the IRS. The 2026 figure appears in the fall 2025 inflation-adjustment revenue procedure and in the Form 8853 instructions. Confirm the current number there or with your CPA before filing, since the figure changes every year and published articles go stale quickly.
Does the limit apply to my policy?
Only if it pays a flat daily or monthly cash amount rather than reimbursing bills. Reimbursement policies pay against documented qualified long-term care expenses and are excluded from income without a per diem ceiling. Read the benefit provision on the policy schedule page and look for the words reimbursement of actual charges versus cash or indemnity benefit.
What happens if I receive more than the limit?
The excess is taxable income unless your documented qualified long-term care expenses for the same period were at least as large. That is why receipts matter on a cash policy even though the carrier never asks for them. You reconcile the benefits reported on Form 1099-LTC against your costs on Form 8853 with your individual return.
Do two policies each get their own limit?
No. The per diem limit applies to the aggregate of all periodic payments received for the same insured for the same period, including a long-term care policy and a chronic illness accelerated death benefit rider on a life insurance policy. Families who assembled coverage over decades and never looked at the total are the ones who get surprised.
Is the per diem limit the same as the LTC premium deduction limit?
No, and they are constantly confused. The premium deduction limit is a separate age-banded table capping how much of a tax-qualified LTC premium counts as a deductible medical expense. The per diem limit caps tax-free benefits received. One is about money going out, the other about money coming in.
Is a viatical settlement subject to the per diem limit?
Not if the insured is certified as terminally ill, generally meaning reasonably expected to die within 24 months. That exclusion under section 101(g) has no per diem ceiling. Payments made on a chronic illness certification are subject to the cap. The distinction between terminal and chronic certification is the single most consequential fork in this area.
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Related Reading
- What Is An Ltc Benefit Trigger
- What Is An Accelerated Death Benefit Rider
- Viatical Settlement Tax Exclusion Explained
- Life Settlement Vs Hybrid Ltc Policy
- Ltc Policy Premium Increase
- What Is A Viatical Settlement
- What Is A Life Settlement
- How Much Is My Policy Worth
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.