Form 1099-LTC: Long-Term Care and Accelerated Death Benefits

A Form 1099-LTC: Long-Term Care and Accelerated Death Benefits in the United States organises the details a party must supply for the purpose it serves.

Long-term care insurance benefits are generally excludable from income under IRC Section 7702B if the contract is a qualified long-term care insurance contract. A qualified contract must provide coverage only for qualified long-term care services, must not provide cash surrender values, must not pay expenses reimbursable under Medicare, and must be guaranteed renewable. Benefits paid on a reimbursement basis (covering actual LTC expenses incurred) are fully excludable from income without limit. However, benefits paid on a per diem or indemnity basis (a fixed daily amount regardless of actual expenses) are excludable only up to a daily limit set annually by the IRS ($420 per day for 2024) under IRC Section 7702B(d), or the actual cost of care, whichever is greater.

Accelerated death benefits are amounts received under a life insurance contract before the insured's death, typically because the insured is terminally or chronically ill. Under IRC Section 101(g), accelerated death benefits paid to a terminally ill individual (certified by a physician as having an illness reasonably expected to result in death within 24 months) are fully excludable from income. For chronically ill individuals, the exclusion rules parallel those for long-term care benefits, with per diem payments excludable up to the same daily limit.

Form 1099-LTC is issued whenever an insurance company makes payments under a qualified long-term care insurance contract or pays accelerated death benefits under a life insurance policy. The most common scenario involves an individual who has been certified as chronically ill — unable to perform at least two activities of daily living (ADLs) such as eating, bathing, dressing, toileting, transferring, and continence for at least 90 days, or requiring substantial supervision due to severe cognitive impairment. The insurance company pays benefits to cover nursing home care, assisted living, home health aides, or adult day care services.

Accelerated death benefits trigger Form 1099-LTC when a terminally ill policyholder elects to receive a portion of their life insurance death benefit before death. Many modern life insurance policies include an accelerated death benefit rider that allows payment of 25% to 100% of the death benefit upon diagnosis of a terminal illness. Viatical settlement providers who purchase life insurance policies from terminally or chronically ill individuals also file Form 1099-LTC to report payments made to the insured.

The insured individual uses Form 1099-LTC to complete Form 8853 (Archer MSAs and Long-Term Care Insurance Contracts), Section C, which calculates whether any portion of the benefits received is taxable. For per diem payments, the taxpayer compares total benefits received against the greater of the IRS per diem limit ($420/day for 2024, multiplied by the number of days of coverage) or actual qualified long-term care costs incurred. Any excess is included in gross income. Reimbursement-based payments that do not exceed actual qualified LTC costs are excluded regardless of amount.

Form 1099-LTC reports several key data fields that determine the taxability of benefits received. Box 1 reports the gross long-term care benefits paid during the year, encompassing all amounts paid under the LTC contract or as accelerated death benefits. Box 2 reports accelerated death benefits paid separately from LTC benefits, allowing the taxpayer to distinguish between the two types of payments for tax computation purposes.

Box 3 indicates whether the benefits were paid on a per diem (indemnity) basis or a reimbursed amount basis. This distinction is critical: reimbursed amounts that do not exceed actual qualified long-term care expenses are always excludable, while per diem payments are subject to the daily dollar limit under IRC Section 7702B(d). If Box 3 indicates per diem payments, the insured must calculate whether total benefits exceed the annual limit (daily rate multiplied by days in the period) and include any excess in income.

Box 4 indicates whether the insured is a qualified long-term care insurance contract holder, and Box 5 specifies whether the insured was certified as terminally ill or chronically ill. Terminal illness certification makes accelerated death benefits fully excludable under IRC Section 101(g)(1), while chronic illness certification subjects per diem payments to the daily limit. The form also identifies the policyholder and the insured (who may be different individuals), the insurance company filing the form, and the policy number. The insured transfers the Box 1 amount to Form 8853, Section C, where the exclusion computation is performed. Any taxable amount flows to Schedule 1, Line 8z of Form 1040 as other income. The form must be filed with the IRS and furnished to the insured by January 31 of the year following payment.